U.S. Reinsurance Prices Jump at January Renwals

Frequent but strong storms — along with model changes — left “the United States just as exposed to the shifting market” although it avoided a single large 2011 catastrophe, according to a report issued Wednesday by insurance broker Guy Carpenter.

Despite avoiding a large windstorm or earthquake event, U.S. property reinsurance renewal prices are up 5 percent to 15 percent, the report states. That is in lock step with global reinsurance prices that reflect heavy losses tied to mega events like the New Zealand earthquakes and flooding in Thailand.

“While the United States did not experience a single large cat event in 2011 as occurred in some other regions, there was a high frequency of events that impacted many companies,” Guy Carpenter said in its January 2012 Renewal Report , adding that the release of RMS v11 also had “an extreme effect on modeled results” that was almost equal to a large catastrophe event in terms of possible losses.

In terms of actual storm activity, the U.S. experienced one of the worst tornado seasons on record that caused a combined insured loss of around $20 billion, the report said. Those smaller storms, if combined into single event, would have ranked the second quarter of 2011 as the fourth most expensive disaster in U.S. history.

Changes to the RMS windstorm model also pushed reinsurance prices up for U.S. buyers at January renewals, with buyers that use the RMS model experiencing skyrocketing prices as inland loss projections ballooned.

“Depending on how the price change was assessed, from the way the individual models were run to the blending of various model output and the weight given for methods outside of the cat models, the range of calculated price change for an individual contract could be extremely large, and in some cases was over 100 percent from the high to the low perspective,” the report states.

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