Reinsurers’ rate discipline “dwindling,” Benfield report says

Another year of comparatively mild losses for the reinsurance market in 2007 means “any remaining post-loss caution from previous years is rapidly dwindling,” according to a report, ‘Changing the Game,’ published by Benfield, an independent reinsurance and risk intermediary.
The report finds property catastrophe rates at the January 2008 renewals are continuing to decline. “Risk-adjusted falls of more than 10% were reported in many territories,” Benfield notes in a press release announcing its report.
In spite of the rate reductions, “the trend for higher retentions has continued, suggesting reinsurance pricing is still relatively robust,” Benfield says. “Pressure from rating agencies, regulators and investors to manage capital more efficiently continues to exert some discipline.”
Benfield CEO Grahame Chilton described 2007 as “another ‘cat-lite’ year.” However, he added, “we saw increased demand for high level catastrophe reinsurance cover.”
Catastrophe models are suggesting the continuation of a longer-term escalation in size and frequency of catastrophe losses, Chilton said. He said growing risk concentrations and climate change are driving the trend.
The report finds the appetite of the capital markets for reinsurance risk has been undiminished by falling rates or the recent credit crunch.
“The sub-prime crisis has served to emphasize the attractions of uncorrelated reinsurance risk,” Benfield says. “Buyer appetite for sophisticated alternatives to conventional reinsurance continues to evolve and shows little sign of being reduced by cheaper traditional reinsurance.”