But some brokers are more negative again, believing that, despite recent


losses, the market is still slipping backwards in terms of rates. Aon Benfield, in its Reinsurance Market Outlook report, says that recent events have been insufficient to stop a continuing decline in US and European property- catastrophe rates. It claims that US property-catastrophe rates declined by between 5 and 10 percent in the April 1 renewals and it forecasts that the forthcoming June/July renewals period will see rates flat to down 5 percent for US hurricane-driven programmes.


“Throughout the recent, significant global events, reinsurance


responded to the needs of global and regional insurers as intended, with material volatility shifted to reinsurers from the balance sheets and income statements of global and regional insurers,” says Bryon Ehrhart, chairman of Aon Benfield Analytics. “Much greater stability in the regional insurance markets has been achieved as a result of effective reinsurance programmes, and affected insurers have gained new or reaffirmed existing respect for the volatility that can accompany frequent chance events.”


PRICING IN ASIA W


hile US property-catastrophe rates are predicted to remain flat in the forthcoming renewals, the situation is more


complex in Asia due to the timing of the Tohoku earthquake on March 11—just weeks before the important April 1 Asian renewals.


Because of the disruption in the country, many insurers chose


to extend current programmes while losses were being assessed, according to Aon Benfield. Where renewals did take place in Japan, rates on typhoon programmes increased by between 5 and 10 percent and earthquake programmes by between 25 and 50 percent.


“Understandably, a number of the major Japanese insurers


have paused the renewal process while they take time to assess the impact of the tragic earthquake and tsunami,” says Bryon Ehrhart, chairman of Aon Benfield Analytics.


“However, the reinsurance market remains functional with


its existing capital base, and we do not anticipate the need for material new capital flows into the reinsurance market to satisfy insurer demand for catastrophe reinsurance based upon the global events to date. Just as we witnessed following the regionally significant Chilean earthquake in early 2010, the reinsurance market continues to offer the capacity required by insurers at terms and conditions that remain lower than the cost of insurers’ equity capital.”


According to Guy Carpenter, the Tohoku earthquake will likely


become the most expensive insured loss outside of the US on record, with current modelled estimates predicting an insured loss ranging between $12 and $30 billion. And the broker says this has—and will—continue to increase rates.


The broker says that most companies were able to renew


unchanged capacity for pro rata treaties at the April 1, 2011 renewal, despite the earthquake occurring during negotiations.


But some things did change. Typical ceding commissions for this kind of business typically range between the low and high teens. In most, but not every case, these commissions were reduced by up to 3 percent in order to achieve placement goals. Guy Carpenter says reinsurers also sought greater detail on primary underwriting practices.


In terms of excess of loss protection in Japan, there was more


of a mixed picture. Many of the larger programmes, in particular for the large mutuals, extended their programmes by up to three months, while the remainder opted for a 12-month renewal, as usual. Rates for renewing treaties varied between increases of 15 and 50 percent, and were dependent on individual circumstances, says Guy Carpenter.


The quoting season for windstorm business started just prior to


the Tohoku earthquake. Lead reinsurers initially quoted modest increases ahead of negotiations, but there was a widespread expectation that small reductions would ultimately be available. Following the March 11 Tohoku earthquake, however, insurers were not able to press for reductions and most elected to take up quoted pricing, says Guy Carpenter. The result was that windstorm rates for those programmes increased by 3 to 10 percent. Capacity remains tight for this line of business.


Programmes agreed early were often renegotiated following the


earthquake and capacity needs were subjected to heavier scrutiny. Because of the uncertainty in the market, reinsurers were more willing to cut back on their support of a programme if pricing did not meet expectations.


In reviewing the relationship between the rate on line (the amount


charged) and the loss on line (amount of risk) for the April 1, 2010 and 2011 renewals, pricing was flat to up very slightly, says Guy Carpenter.


Summer 2011 | INTELLIGENT INSURER | 15


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