Cat Reinsurance Continues Growth With Big Price Swings

Growth in the use of catastrophe reinsurance continues to rise steadily despite cyclical price shocks, according to Swiss Re.

Total expected catastrophe excess of loss (Cat XL) premium within the world’s 14 largest markets has grown at a compound annual rate of 10 percent, said Matt Weber, head of property and specialty lines for Swiss Re.

Weber made his remarks during a press conference held in London today.

The total size of the Cat XL market has grown from a little over CHF 70 billion ($69.9 billion) in 1999 to slightly over CHF 160 billion ($159.8 billion), according to Swiss Re numbers.

But despite the growth in the market, pricing remains challenging with significant swings occurring from year to year because of seasonal catastrophe losses and market changes.

“While growth is stable, prices are highly volatile,” Weber said.

The most significant changes in catastrophe pricing occurred after the September 11, 2001 terrorist attacks (27 percent premium level increases in 2001 and 2002) and Hurricane Katrina (19 percent premium level increase in 2006.)

Price swings have continued, albeit with less volatility in recent years. Weber pointed out that annual Cat XL premium levels increased 7 percent in 2009 following a 9 percent decline in 2008.

“2009 was very good year for insurance companies and reinsurance companies,” Weber said, adding that Swiss Re expects to take in $1.8 billion in natural catastrophe premiums with an expected average annual loss on its current book of $1 billion.

Transfer of catastrophic risk into the capital markets is expected to continue to grow in 2010 as the insurance linked securities market stabilizes, Weber added.

Total outstanding catastrophe bonds exceed $12 billion and Swiss Re expects more issuers to enter the market next year.

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