Property catastrophe rates up 8%: Guy Carpenter (January 06, 2009)

Property catastrophe rates were pushed up 8% due to high catastrophe losses and the continuing international credit crisis, according to a briefing published by Guy Carpenter & Company.
Major findings in the briefing, Cats and Credit Push Prices Up: Global Reinsurance Review January 2009, include:
• Despite the magnitude of catastrophes and financial losses, the 8% increase in property pricing is lower than increases following other disasters such as Hurricanes Andrew, Katrina, Rita and Wilma.
• Casualty reinsurance prices increased 5% on average at January 2009 renewal, with a notable lack of capacity. “A number of programs could not be placed at any reasonable rate,” according to Guy Carpenter. “As a result of the financial catastrophe, new insurers had the opportunity to enter the market, but reinsurers generally were unwilling to support new capacity in order to keep reinsurance rates from dropping.”
• Carriers lost 15% of their implied aggregate book value in 2008, according to the Guy Carpenter Global Composite, compared to 32% for the S&P Banks Index.
• The later-than-usual treaty retrocession renewal in 2008 saw reduced capacity and higher prices. The market was constrained by an inability to replenish balance sheets as a result of the financial situation, as well as the withdrawal of major players from the market, resulting in an upward pricing reaction that was more pronounced than in other sectors.
• A number of reinsurance buyers sought 2009 capacity in the form of Industry Loss Warranties (IWL) as early as October 2008.
IWLs pay out when the entire insurance industry as a whole suffers a certain loss as a result of a disaster, as opposed to being triggered when the individual company experiences a loss.
“Several major purchases led to higher prices, as carriers increasingly looked to replace catastrophe bond capacity with ILW cover,” the release notes. “Higher demand and a limited ILW capacity are likely to continue into 2009.”