As Reinsurance Prices Drop, Insurers More Likely To Buy

Tue Sep 11, 2007 13:48:00By Lavonne Kuykendall Of DOW JONES NEWSWIRES

CHICAGO (Dow Jones)--The price of reinsurance for U.S. exposures peaked last year in the aftermath of 2005's record storm season, but prices have dropped since and will continue to drop into the beginning of 2008.

A quiet 2006 storm season and a so-far-light U.S. hurricane season this year, along with an increase in available capital, all contributed to a stabilizing of reinsurance rates, according to insurance brokers.

As reinsurers meet this week at an annual conference in Monte Carlo, a series of reports predict falling reinsurance prices as insurers keep more risk on their own books or use catastrophe bonds or other capital markets solutions to reduce their exposure to big insurance claims.
Reinsurance is fast becoming a lower-cost alternative to catastrophe bonds, giving reinsurers an opportunity to grab more business from property/casualty insurers, after two years of seeing risk financing move away from reinsurers to capital market structures such as bonds, according to a report published this week by insurance broker Aon Corp.'s (AOC) reinsurance brokerage unit.

"We see the 2008 market cycle as an exciting and challenging one as reinsurance has the opportunity to play a larger role in capital management strategies," said Bryon Ehrhart, president and chief executive of Aon Re Services, in a Sunday press release.
Large buyers of reinsurance will still expand their use of capital markets, said Aon Re, but will use reinsurers for the majority of their risk financing, as credit market risk spreads continue to widen or become more expensive.

Barring a major catastrophic event, which could send prices back up, insurers will be more likely to use reinsurance markets than equity and debt markets, Aon Re said.
Guy Carpenter, the reinsurance brokerage unit of Marsh & McLennan Cos. (MMC), said in a report this week that the growing popularity of catastrophe bonds has helped discourage startups in the reinsurance market.

In the first half of this year, 15 catastrophe bonds with a total value of $3.2 billion have been created, and the total for the year is expected to easily surpass the total for 2006 of 20 transactions totaling $4.69 billion in risk capital.

Twelve new reinsurers were created in 2006, but only four started up in the first half of this year "as the perceived market opportunity diminished," the report said.
A Fox-Pitt Kelton Cochran Caronia Waller note estimated Tuesday that reinsurance prices will drop by between 5% and 10% for renewals that occur Jan. 1.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com
(END) Dow Jones Newswires
09-11-07 1348ET
Copyright (c) 2007 Dow Jones & Company, Inc.- - 01 48 PM EDT 09-11-07 This is a real-time news story and may be updated in the near future.