In its preview of the 2007 reinsurance renewals market, Willis has predicted the market will continue to consolidate and build on the risk management experience gained from the past two years.
The broker has indicated that rates for both property and casualty exposures are generally flat or falling modestly by between 5% and 10%, apart from US property business, particularly in relation to major East Coast or Gulf Coast wind-exposed business.
Five major factors are coming into play:
• Reinsurers have sought to bring January renewals of Nationwide and/or Critical Cat accounts in-line with the mid-year 2006 pricing levels with cedants experiencing rate increases of around 40%
• Reinsurance pricing is reflecting the perception of increased volatility that is embedded in the latest property catastrophe models
• Reinsurers are trying to recoup losses from the catastrophes of 2005
• Reinsurers and their investors have a new appreciation for the insured values and the resulting catastrophe exposures in the Northeast of the US – the third “peak zone”
• There is simply not enough retrocession capacity for reinsurers to spread their catastrophe risks. Reinsurers, as a consequence, require greater returns to compensate for this increased retained exposure.
In summary, Willis argued that reinsurers are rebuilding both their balance sheets and their commercial confidence while in parallel insurers are creating and implementing sophisticated enterprise risk management programs.
