of reinsurers and some of the other reinsurance brokers. At its breakfast briefing in Monte Carlo, Hannover Re CEO Ulrich Wallin argued that there were more dynamics affecting reinsurance pricing than catastrophe losses ahead of the January 1 renewals.
“There have been significant reserve releases in the last year, a heavy
tornado season and above-average hurricane activity, and the model change—RMS version 11—brings aggregates significantly higher,” he said. “At the July renewals, we have seen on average increases in prices by 10 to 15 percent and we don’t see any reason why rates shouldn’t increase more at year-end or at least stay that way.”
While retentions remain high in North America, cedants are buying higher limits due to the new RMS model, noted global reinsurance head Andre Arrago. “There will be a need for insurance companies to buy more storm capacity,” he said.
Member of the executive board and specialty lines head Jurgen Graber considered some of the dynamics affecting pricing in specialty lines of the business, which in his view “requires double-digit margins” because of the potential for high losses. This is particularly the case in offshore energy, which was hit by hurricanes in 2004 (Charley, Francis, Ivan and Jeanne) and 2005 (Katrina, Rita and Wilma), Hurricane Ike in 2008 and the Deepwater Horizon disaster in 2010.
In 2011, there has been another large loss, this time in the North Sea
where leaks from a Shell oil platform in August caused the largest oil spill in British waters in a decade. The business interruption loss from this event is likely to be around $1 billion, revealed Graber. The losses in offshore energy have “led to rate increases at the April 1 renewals and this has to continue because of the magnitude of the billion dollar losses all over the place”.
26 | INTELLIGENT INSURER | November 2011
Unsurprisingly, Ehrhart’s viewpoint was hotly contested by a number GROWING CASUALTY
RETENTIONS One thing market pundits did agree on was that the size of the US casualty reinsurance market has been decreasing. This is due to a combination of reinsurers’ unwillingness to lower rates further for liability classes, insurers’ decision to retain more of the risk given the mismatch of original and reinsurance pricing, and a relatively benign loss environment since the APH claims of the late 1980s and early 1990s.
Wallin noted that Hannover’s casualty premium had halved over the
past seven years, but was optimistic that pricing would have to improve. “We’ve seen a lot of reserve releases and pockets are deeper than many thought, but I feel there is not that much left to be released,” he said. “Accident year combined ratios have crept up to more than 100 percent and that means life is going to be more difficult and there is less room for reductions, so we are cautiously optimistic on the casualty side.”
Reinsurers need to rethink their approach to casualty business in order
to grow the market, argued Aon Benfield. It focused on stagnant growth of the reinsurance market, with an increase in property catastrophe business offset by shrinking demand on the casualty side. Business ceded to reinsurers by US casualty underwriters has fallen by half since 2004— and clients are comfortable with retention of $35 million compared to just $5 million in 2004, pointed out Ehrhart.
With the US accounting for a massive 70 percent of worldwide casualty
reinsurance premium, reinsurers need to undergo a fundamental rethink on how they add value to the class. They should differentiate their product, help clients innovate new casualty products, and “follow the fortunes” of the primary market. If that fails to happen, “you will continue to see a decline in purchases”, he warned.
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