October 19, 2004 by Canadian Underwriter
It should be a case of “status quo” for reinsurance renewals, despite reports of market softening and the impact of hurricanes hitting the U.S. this fall.
Speaking at the 3rd annual Aon Re Rendezvous in Mississauga Tuesday, Aon Re Americas vice chairman Ross McKenzie says while the spate of four major hurricanes which hit the U.S. “took the cream off the top of the pudding”, it is not expected to have a dramatic effect on rates or availability outside of “hurricane alley”. In fact, some reinsurers, he says, appear to be interested in how they can spread their risks further outside the area of the south-east U.S. so prone to hurricane activity.
Heading into renewals for 2004, Aon had forecast modest discounts in the property catastrophe line on the order of 5-10%, a scenario borne out in global markets. Perhaps more surprising was the serious discounting in line such as excess directors’ and officers’, which dropped 10-40% in the U.S., property for the energy sector, which similar saw rates drop, and even big, international property facultative risks. However, McKenzie cautions against taking such decreases as signs that price competition will suddenly proliferate. “I don’t read these [discounts] as necessarily the end of the hard market or the start of the soft market.” These lines were among the first and worst to harden and therefore they could be expected to see the most significant price corrections.
In fact, the “hard market” of 2001-2004 saw premiums increase overall by only 8%, he says, and this comes after the 14-year soft market which began in 1987 to 2001. Questions remain about the industry’s ability to attract new capital given that its returns have fallen well below that of other industries for many years only this year, with a predicted industry return of about 15%, will insurers keep pace with other industries.
And even with the influx of US$100 million in new capital between 2001-2003, well over half of that, US$65 million, went to reserves to deal with prior years’ claims, he adds.