The influx of new insurance capacity to make up for losses sustained in the terrorist attacks of 11 September has rekindled competitive pricing pressures and may limit the scope and duration of the current hard market.
Reinsurance broker Benfield Group says in a new report that the infusion of new capacity has outpaced WTC loss payments and that, as a result, premium increases have not reached the "draconian" levels originally forecast.
Benfield Group chief executive Grahame Chilton said: "That's the good news. The bad news is that underlying the continued hard market are poor fundamentals such as weak equity markets, a sagging global economy, lower interest rates and corporate bankruptcies which together will reduce the investment returns of many insurers and reinsurers."
In its "Reinsurance Renewal Season Report, Year End 2001", Benfield says new capital raised since 11 September stands at over $16bn (£11.3bn), of which $6bn (£4.2bn) has been channelled to five of the new Bermuda-based reinsurers alone.
Benfield adds in the report that renewals for 2002 have trended away from broad-based general coverage towards specific, risk-named perils and exclusion, rather than inclusion with stricter definitions.
The report says rates increased across the board from as little as 10% to as high as 300%, with cedants who reached the end of multi-year agreements on 31 December 2001 hardest hit.
The report says rather than automatically excluding terrorism, the major European insurers assumed a flexible approach based on careful risk evaluation. Lloyd's syndicates, on the other hand, generally imposed a blanket exclusion, thereby losing business to continental European markets and Bermuda.
It adds that the US market remains constrained by the lack of a legislated national solution such as a terrorism pool.
