Benfield CEO Grahame Chilton is quick to reject suggestions that retrocession has all but disappeared in 2006. “There is still retrocession at a price but reinsurers are seeking to find a cheaper alternative,” he told Global Reinsurance. But the cheaper alternatives – risk retention and alternative risk transfer (ART) solutions such as sidecars – do not offer the same depth of coverage that reinsurers ideally need in retrocession.
Chilton said the trend of rate hardening on US wind-exposed lines was continuing and that rates had gone up by an average of 70%-75% for the whole of US reinsurance, as shown during the mid-year renewals. “There have been month on month price increases for January through to June on southeast exposed business,” he said. “But in non-loss affected areas of the US there have also been price increase – 140% in some regions and only 4% in others.”
For markets and lines of reinsurance not exposed to US windstorms Chilton said there had been downward pressure on pricing resulting from an increase in competition. A new generation, such as Bermuda-based reinsurers looking to diversify their portfolios, are putting pressure on conventional reinsurers to maintain pricing discipline.
Pointing to the growing popularity of sidecars and cat bonds, Chilton said that in a hard market cedants would have to carefully exploit the short-term nature of the capital markets but not lose their relationship with long-term traditional reinsurance. “It's prudent to utilise both options of risk transfer – reinsurance has sustainability.” From the capital markets' point of view re/insurance is another class of risk which can be uitilised to diversify their risk profile. “These investors are used to volatility,” he added.
