Aon Re Global Study Finds Reinsurance Rates ‘Flat to Lower’

Aon Re Global’s analysis of reinsurance rates found premiums for “personal lines, standard commercial lines and complex commercial lines,” are “likely to be flat to lower during mid-year renewals of property catastrophe reinsurance programs.”

Aon Re even found evidence of “a slight excess of capacity relative to likely reduced demand for peak Florida capacity.”

Aon Re listed the following market expectations, detailed by region, for the June 1 and July 1 renewals for ROL Capacity Retention Changes:
— Changes United States: Personal lines Flat to -20 percent +10 to +25 percent; Voluntary Standard commercial lines Flat to -15 percent +5 to +20 percent; Voluntary Complex commercial lines Flat to -10 percent Flat to +20 percent
— Voluntary Europe Flat to -5 percent Plentiful.
— Voluntary United Kingdom Flat Plentiful Voluntary Japan Flat to -5 percent Plentiful
— Voluntary Asia Pacific (Ex. Japan) -10 percent to -15 percent Plentiful
— Voluntary Australia -5 percent to -10 percent Plentiful
— Voluntary Canada Flat to -10 percent Plentiful
— Voluntary South America -5 percent to -20 percent Plentiful
— Voluntary Mexico -10 percent to -20 percent Plentiful
— Voluntary Caribbean -5 percent to -10 percent +5 to +20 percent

The bulletin notes that “Voluntary assumes no changes to exposures reinsured. Rate of change measured from June and July 1, 2006 terms.”

Aon Re said the “drivers at play in the property catastrophe reinsurance market leading up to the June 1 and July 1 renewals include:
— A nearly loss free reinsurance year in 2006
— Restoration of reinsurers’ capital bases
— Significant participation in the catastrophe reinsurance business from non-traditional sources, such as hedge funds, high net worth individuals, institutional money managers and the asset backed securities market
— $10-$14 billion of reinsurer capital freed up as a result of additional reimbursement contract capacity provided through the Florida Hurricane Catastrophe Fund, a state-controlled agency that acts as a reinsurer of Florida residential risks
— $8-$12 billion of reinsurer capital freed up or expected to be freed up from the actual and expected growth of a newly competitive Citizens Property Insurance Corporation, a state-controlled agency that acts as an insurer of Florida residential and commercial risks
— Substantial easing of a major rating agency’s capital requirements for insurers related to required capital for property catastrophe risks
— Improving confidence from reinsurers in the revised catastrophe reinsurance models Several factors are working contrary to these dynamics, including:
— Increasing pressure for property catastrophe reinsurers to return capital to shareholders as market conditions soften
— The potential for reinsurance industry consolidation and related capital management measures that may reduce capital and capacity
— Expectations that non-traditional investors such as hedge funds will be disciplined as expected returns on collateralized products decrease as market conditions soften

“Four months ahead of the Jan. 1, 2007 renewals, Aon Re Global correctly predicted the return of a functioning worldwide property catastrophe reinsurance marketplace,” noted Bryon Ehrhart, president and CEO of Aon Re Services. “In such a marketplace, cedents would generally find sufficient capacity at terms and conditions that represented accretive underwriting capital for their organizations. We believe Aon Re Global’s ability to provide expectations in advance of key renewal dates provides significant value to our clients.”