Reinsurers see capacity shrink by 15% in 2008

U.S., Bermuda and large international reinsurance companies lost about 15% of their capacity in 2008 as measured by shareholders’ equity, says a recent A.M. Best special report, Reinsurers Keep Their Balance Despite 15% Drop in Shareholders’ Equity.
The report found the U.S. and Bermuda markets absorbed about US$20 billion associated with Hurricane Ike damages. Nevertheless, the markets still managed to post a 2008 combined ratio of 93.6%, thanks in part to reserve releases that “shaved about seven points off the U.S. reinsurance and Bermuda market segment’s loss ratio.”
A.M. Best said the widening of credit spreads, historic stock market losses and defaults on corporate bonds all accounted for the majority of capacity withdrawn from the reinsurance industry.
But despite this withdrawal of capacity, the Jan. 1, 2009 renewal did not bring a universal hard market, with the exception of catastrophe-exposed risks, the reports says.
“The Jan. 1 renewal was not what many proclaimed it would be,” said A.M. Best. “Calls for a hard market went unanswered as only peak catastrophe zones and ocean marine/energy accounts reported double-digit premium increases.”
Casualty rates slowed their decline and “the trend is expected to turn favourable for reinsurers at the July renewal.”
One exception, A.M. Best noted, is in directors and officers and errors and omissions claims. “In 2008, securities-related class-action lawsuits were filed at the highest rate since 2004,” the report said. “It is estimated that more than [US]$10 billion of claims could be filed [in 2009], with defense costs affecting near-term loss trends.”