Reinsurance rates continue to soften

For the second consecutive year, worldwide reinsurance property catastrophe rates for most lines of business declined at the 1 January 2011 renewals, according to a report published by leading global risk and reinsurance specialist, Guy Carpenter.

Moderate loss activity in 2010, high levels of industry surplus, and other factors contributed to the decrease. Structures did not change significantly, with cedents buying amounts of cover comparable to last year.

One key reinsurance industry trend is excess capital. Guy Carpenter estimates dedicated reinsurance sector capital to be US$19 billion or 11% in excess of historical levels given risks currently assumed, with a defensible range of between US$14 billion (8%) and US$26 billion (15%).

The Guy Carpenter report, titled “Points of Inflection: Positioning for Change in a Challenging Market,” also identifies several emerging drivers of change that have the potential to turn around the current soft market conditions in the year ahead. Among them, the Solvency II regulatory capital regime is seen to have profound impact on the industry far beyond the European jurisdiction. Re/insurers worldwide should be prepared to identify, understand and manage these risks associated with Solvency II changes.

David Flandro, Guy Carpenter’s Head of Global Business Intelligence, said: “While current market conditions show no immediate signs of reversing, we see an increasing number of latent factors which — alone or in combination — could at some point precipitate a meaningful change in the market’s direction. Depending on loss experience, these factors could begin to coalesce around renewals later in 2011.”