Aon predicts flat reinsurance rates or 10% decreases in Canada

Reinsurance rates on line for personal lines, standard commercial lines and complex commercial lines in Canada are likely to be flat or up to 10% lower during mid-year renewals of property catastrophe reinsurance programs, Aon Re Global predicts.
Additionally, Aon Re Global said it expects plentiful reinsurance capacity in the Canadian market.
Aons expectations for Canada are in line with what is happening within the global reinsurance market as a whole. According to Aon, the drivers at play in the property catastrophe reinsurance market leading up to the June 1 and July 1 renewals include:
a nearly loss-free reinsurance year in 2006;
restoration of reinsurers’ capital bases;
significant participation in the catastrophe reinsurance business from non-traditional sources such as hedge funds, high net worth individuals, institutional money managers and the asset backed securities market;
US$10-$14 billion of reinsurer capital freed up as a result of additional reimbursement contract capacity provided through the Florida Hurricane Catastrophe Fund, a state-controlled agency that acts as a reinsurer of Florida residential risks;
US$8-$12 billion of reinsurer capital freed up or expected to be freed up from the actual and expected growth of a newly competitive Citizens Property Insurance Corporation, a state-controlled agency that acts as an insurer of Florida residential and commercial risks
substantial easing of a major rating agency’s capital requirements for insurers related to required capital for property catastrophe risks; and
reinsurers improving confidence in the revised catastrophe reinsurance models.
Factors working contrary to these dynamics include:
increasing pressure for property catastrophe reinsurers to return capital to shareholders as market conditions soften;
the potential for reinsurance industry consolidation and related capital management measures that may reduce capital and capacity; and
expectations that non-traditional investors such as hedge funds will be disciplined as expected returns on collateralized products decrease in line with softening market conditions.