Reinsurance pricing flat to down: Guy Carpenter

In its annual report on reinsurance renewals for January 1, broker Guy Carpenter says pricing is generally flat to slightly down for 2005. The report also notes that pricing seems to be more directly tied to risk modeling, leaving little room for negotiation of rates, although terms and conditions seem to be on the table to a greater degree.
The conditions were somewhat surprising given indications in early 2004 that price softening was setting, leading to predictions of significant rate decreases for 2005. 2004’s record global catastrophe losses may be to blame. “The reinsurance market was firmer than we originally anticipated,” notes Sean Mooney, Guy Carpenter’s chief economist. “Given the frequency of hurricanes in Florida, as well as the record number of typhoons in Japan, we found that the marketplace was more cautious and somewhat less competitive than expected.”
Property catastrophe prices were flat to down 6%, with abundant capacity have less effect on lower layers, but producing competition in higher layers. In light of concerns over the renewal of the Terrorism Risk Insurance Act (TRIA), the impact was felt on property and workers’ compensation lines.
Price firming continued in directors’ and officers’ (D&O) liability, with several market exits leading to concerns over primary pricing on the part of reinsurers. The exodus of Converium from this line and from the North American market overall, heightened concerns over reinsurer security.