Bloomberg News

Reinsurance Rate Increase to Focus on Loss Areas, Willis Re Says

December 30, 2011

Dec. 30 (Bloomberg) -- Rate increases for reinsurance coverage in January will focus on loss-affected areas while this year’s claims burden won’t lead to a full turn of the market, according to reinsurance brokerage Willis Group Holdings Plc.

“The market is increasingly segmented with rate movements being driven by individual loss history and perceived exposure movements, and not by an overall blanket increase,” Willis Re said in a report today. “If 2012 underwriting results return to profitability, it’s unclear if we will witness a prolonged market hardening.”

2011 was the second-most-expensive year for reinsurers such as Munich Re and Swiss Re Ltd. and the primary insurers whom they help shoulder risks for clients, according to Zurich-based Swiss Re. Man-made and natural catastrophes including the earthquake and tsunami in Japan, the earthquakes in New Zealand and the floods in Australia and Thailand cost the industry about $108 billion, it said on Dec. 15. That compares with $123 billion in claims from disasters including Hurricanes Katrina, Wilma and Rita in 2005.

More than half of the insured losses recorded in 2011 will be paid by the reinsurance market, Willis Re said in the report, adding that “the majority of this year’s catastrophe claims arose from either unmodeled or inadequately modeled perils or territories” such as the earthquake and tsunami in Japan and the flooding in Thailand, which led to unexpectedly high claims in coverage for supply-chain disruptions.

‘Market Hardening’

“The key to a sustained market hardening is much more likely to lie in the impact of the current economic turmoil in the euro zone and elsewhere and how this works through to diminish the capital bases of reinsurers,” Willis Re said. Capital levels in the global reinsurance industry declined “only marginally” by the end of the third quarter compared with the start of the year, the broker said.

In reinsurance terms, a hardening of markets or rates refers to an increase in prices for coverage among a broad number of areas of coverage.

The earthquake in Japan on March 11 and the ensuing tsunami caused insured losses of $35 billion, while the Feb. 22 temblor in New Zealand cost $12 billion. The floods in Thailand are estimated to cost between $8 billion and $11 billion. Severe storms in the U.S. in April and May cost about $14 billion, while hurricane Irene is estimated to cost $4.9 billion, Swiss Re said.

About two-thirds of property and casualty reinsurance contracts of companies such as Munich Re, Swiss Re and Hannover Re, the world’s fourth-biggest reinsurer, are typically up for renewal in January. The remainder is being renewed in April and July with a focus on the Asia-Pacific region and the U.S.

Global prices for reinsurance coverage declined about 7.5 percent in the January 2011 renewals after they dropped about 6 percent a year earlier. Rates rose about 8 percent in January 2009 when reinsurers’ capital was drained by costly storms, including Hurricanes Ike and Gustav, and the financial crisis.

--Editors: Stephen Taylor, Frank Connelly

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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