Catastrophes Failed To Drive Prices
Reinsurance brokers say despite the fact 2011 was the most expensive year ever for natural disasters, the back-to-back series of catastrophes didn’t drive coverage prices higher across the Bermuda industry or other key players in the global market when policies were renewed on January 1.
Reinsurers’ strong capital base meant only insurance policies covering nations the most affected by catastrophes, such as Japan, Thailand and New Zealand, faced significant increases, James Vickers of Willis Group Holdings Plc told the Bloomberg financial news service today [Jan.5].
Rates in many other lines of business “have hardly moved at all,” even as reinsurance companies lost money on their underwriting, Mr. Vickers, chairman of Willis Re’s international and specialty reinsurance unit, told Bloomberg.
“There is not a blanket increase. On accounts where clients had losses, prices have gone up considerably more than 10 percent,” he said.
Last year was the priciest 12 months of natural disasters on record for reinsurers and the primary insurers whose risks they help bear, Munich Re, the world’s biggest reinsurer, said yesterday [Jan. 4]. Earthquakes in Japan and New Zealand and Australian and Thai floods helped cost the industry about $105 billion, surpassing the previous catastrophe record of $101 billion in 2005, when reinsurers were forced to raise capital in the wake of Hurricane Katrina.
Reinsurers covered about half of those insured losses, according to Willis, the world’s third-biggest reinsurance broker.
Mr. Vickers estimated that the industry’s capital at the end of the third quarter was at the same level as the start of 2011, meaning more reinsurers were healthy enough to compete for business on price.
“It was a disappointing renewal season” for reinsurers hoping to charge more, David Watson, head of XL Group Plc’s European division, said on a Jan. 3 conference call hosted by Keefe Bruyette & Woods Ltd. “There was really no significant upward movement in trading conditions.”
About two-thirds of property-and-casualty reinsurance contracts are typically up for renewal in January. The remainder are renewed in April and July, with a focus on the Asia-Pacific region and the US
Only catastrophe-exposed contracts and contracts affected by losses saw “significant improvements to rates,” Brian Boornazian, head of reinsurance at Bermuda-based Aspen Insurance Holding Ltd. said during a Tuesday [Jan.3] conference call hosted by Evercore Partners Inc.
“More change is needed to reach rate levels that are adequate for exposures, and other external facts that affect our industry’s profitability,” he said.
