Renewal Season’s Three Pricing Rules: Location, Location and Location
The annual ritual of renewing reinsurance treaties is in full swing and by all accounts reinsurers are attempting to hold the line on pricing. But for the world’s largest market, U.S. capacity buyers will find significant price swings with regional risks and loss experience varying widely.
On a risk-adjusted basis, pricing on regional accounts that did not experience significant losses are down between 7.5 and 10 percent, says James Kent, executive vice president with Willis Re in Bermuda.
“Reinsurers are trying hard to hold the line on pricing,” Kent explains.
But some regions are faring better than others, depending on the loss year.
For example, accounts with earthquake-only layers are seeing price decreases as much as 20 percent after catastrophe modeling firms adjusted their models to fit new data from the U.S. Geological Survey, Kent explains.
In August the USGS updated its National Seismic Hazard Maps, which act as the basis for many catastrophe modeling firms that assist insurers in calculating potential losses. Because of the changes, some companies have seen significant declines in California residential earthquake loss estimates.
Conversely, accounts located in the U.S. Midwest that have seen significant hail and flood losses in the last two years are seeing price increases.
The current renewal season is “orderly but late,” especially when compared to December of last year, Kent adds.
“Clients and the reinsurance market are in a better place then they were 12 months ago,” says Kent.
Kent explains that because of the uncertainty in the financial markets in 2008, allied with higher than normal catastrophe and fire losses, many reinsurance buyers jumped into the renewal season early in order to access capacity. He added there was a perception that capacity could become scarce as the year progressed.
Despite a broader softening reinsurance market, Kent says the price gap between traditional reinsurance and alternatives like catastrophe bonds is closing.
“The bigger, global players like having access to different forms of capital,” Kent says. “And they do it because they are often buying significant limit.”
Risk Market News Newsletter
Join the newsletter to receive the latest updates in your inbox.