On the eve of the Reinsurance Rendezvous in Monte Carlo, Guy Carpenter & Company, the risk and reinsurance specialist of the Marsh & McLennan Companies has published its annual, comprehensive study of the global property catastrophe reinsurance market.
The study – “The World Catastrophe Reinsurance Market: Steep Peaks Overshadow Plateaus” – shows that global pricing was significantly influenced by extreme rate peaks experienced in the United States and Mexico, which absorbed the majority of the losses from the 2005 storms. Rate increases in U.S. averaged 76 percent; while in Mexico they rose 129 percent, compared with a 2 percent average increase for the rest of the world.
“One promising development was that reinsurers have been willing to differentiate between loss-impacted areas and those regions where conditions have remained relatively stable. This is a very positive sign for the future of the global catastrophe reinsurance market,” noted Guy Carpenter’s President and CEO David Spiller.
Total insured/reinsured losses reached $83 billion in 2005, with $72.6 billion of the insured losses occurring in North America – about 70 percent higher than the prior record of $48 billion in 2004.
“This past year saw unusually hard market conditions for a number of cedents, reflecting unprecedented catastrophe losses,” indicated Tim Gardner, Managing Director and Global Leader of Guy Carpenter’s Property Specialty Practice. “Following the severe 2004 and 2005 hurricane seasons, changes by the modeling firms and the major rating agencies influenced the need for additional capital, which had a major impact on pricing and capacity.”
The report covers markets in 22 countries and four regions, which together account for more than 90 percent of the worldwide market for catastrophe reinsurance. In addition to reviewing catastrophe exposures and the availability of catastrophe insurance from private and government sources, the study summarizes respective market conditions in catastrophe reinsurance, taking into account natural catastrophes caused by perils such as typhoons and earthquakes, as well as acts of terrorism.
Among the report’s key findings were the following:
— The Nordic region, which was hit by winter storm Erwin in January 2005, experienced price increases averaging 20 percent.
— Though ratings downgrades by A.M. Best and Standard & Poor’s were considered unlikely, reinsurers responded by reducing limits in high catastrophe zones and moving exposures via retrocession, sidecars and catastrophe bonds.
— Pricing was highly discriminating in 2006, not only on a country-by-country basis, but also regionally within countries. Cedents in the United States with little or no Gulf or East Coast exposure saw fairly stable conditions, with some programs even renewed at lower than expiring rates.
— Markets reacted to the general expectation of increases in the frequency and severity of North Atlantic storm activity, which has the potential to expose coastal regions of the United States, Mexico and the Caribbean to greater and more frequent losses. Accordingly, the major modeling companies revised or re-interpreted their tropical storm models, leading to higher probable maximum losses (PMLs) for cedents at the same return period.
— With the renewal of the Terrorism Risk and Insurance Act (TRIA) in the United States for an additional two-year period through 2007, much of the pressure from policyholders and primary insurance companies has been relieved.
Copies of the full report are available for download at: www.guycarp.com. For printed copies contact Guy Carpenter at: marketing@guycarp.com
Was this article valuable?
Here are more articles you may enjoy.