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Jan
03
Reinsurance Renewals on Jan. 1st Remain Flat Despite Year of Catastrophes
Posted on Jan 03, 2013 by Sergio Ulloa (G+)
Insurance giant Willis Re have released a report revealing that as of the Jan 1st 2013 (the renewal date for reinsurance rates), reinsurance rates have remained flat compared with 2012. This means that reinsurers have managed to avoid an increase to their rates despite the catastrophes suffered to property, amongst other things, in the wake of Superstorm Sandy that terrorised East coast of the United States last October. The report showed property catastrophe reinsurance rates remained steady both internationally and in the US. This is despite the estimated $20-25 billion dollars in losses currently accredited to Sandy. It is believed that reinsurers managed to maintain, and not exceed their annual budgets, as the losses for the year were considerably less than reinsurance companies were prepared for. The year 2012 saw losses of 50% less than the losses suffered in 2011 (which reached $120 billion). These stable property rates meant that there was no blanket rate increase across reinsurers leading to higher fees during the January renewal period. The report released by Willis Re has illustrated figures showing that the international property catastrophe rates (excluding the US) remained flat to -5%. The same rates were maintained in the US on loss-free accounts, whereas the figure was 10% on loss-impaired accounts. The flat rates after Superstorm Sandy have turned out to be beneficial to reinsurers in more way than one; not only did the year not result in significant losses to the companies, but it also prevented them from having to yield to pressure being exerted by buyers for further concessions on their plans. According to the report, Willis Re Chairman and the CEO (Peter Hearn and John Cavanagh respectively) claimed that the impact of Sandy created stability with regards to market pricing overall. This stability was carried through to the public with reinsurers delivering "to their clients in terms of capacity and continuity." A further outcome of the report showed that investment returns have remained stagnant due to the global financial crisis still bearing effects on insurance. This is despite a significant injection of capital into the market. The crisis plus the natural catastrophes suffered this past year have led primary insurers in most markets to find growth difficult. The larger primary insurers have had to restructure the way they bought reinsurance to account for the sustained losses in the financial crisis. Further information in the report showed that the catastrophic Superstorm has affected the marine insurance market detrimentally, with the market enduring huge losses and a poor underwriting year. The catastrophe prices for the Marine market post-Sandy have increased 15-20% for those with loss-free accounts and those with accounts that suffered losses having prices increase 20-25%. Comparing this with the flat rates maintained in the property catastrophe market shows how much the marine market has suffered. Most reinsurers have maintained adequate capital bases this year, with comparatively low payouts compared to last year. Further benefits have materialised through an influx of new capital. This new capital is derived from long-term investors who have needed an alternative non-correlated investment class, and so have taken to event risk. Overall, reinsurers have managed to satisfy clients well with the 2013 property catastrophe rates renewal. As stated in the report, reinsurers largely "delivered on the undertakings they have made in the run up to renewal" according to Hearn. This is a good achievement when considering the potential losses that could have been incurred during Superstorm Sandy. Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 employees serving clients in virtually every part of the world.