July 23, 2008 by Canadian Underwriter
Property and liability reinsurance renewal rates in 2008 are continuing to decline, according to a Guy Carpenter & Company briefing.
For property catastrophe covers, risk-adjusted price dropped between 10% and 20% relative to July 1, 2007, according to Guy Carpenter.
The briefing, entitled ‘No Surprises, Rates Continue to Fall P& C Reinsurance Renewals, July 1, 200,’ notes both lower and higher layers declined by double digits relative to July 1, 2007 renewals.
Quotes and firm-order terms (FOTs) were both down relative to the previous year, according to the briefing.
FOTs for higher layers were down between 15% and 20% year-over-year, while FOTs for lower layers rates declined 10% to 15%.
The reinsurance market is showing more discipline than the primary market for casualty lines, the briefing says.
“Major players in primary liability lines are pursuing market share aggressively,” according to the briefing. “Sharp decreases in primary pricing, coupled with pressures on ceding commissions, are pushing some reinsurers to the sidelines. In several cases, reinsurers are seeking to switch from proportional cover to excess of loss, where they believe they have more control over the price of the product.”
Two major factors can be expected to restore some stability to reinsurance markets when looking to the future, Guy Carpenter says.
First, the fear of a natural mega-catastrophe will keep rates from decreasing to dangerously low levels. Such fear will increase as time passes and a record-shattering disaster does not occur, Guy Carpenter notes.
Second, insurers feel pressure to secure profitability in the underwriting sector of the business, especially since the weak global economy is reducing equity valuations.