TWO years of unexpectedly quiet hurricane activity in the US have caused a dramatic drop in insurance premiums that, experts say, could spark consolidation amongst brokers and underwriters.
The chief executives of the world's largest insurers and brokers are predicting cover for hurricanes in the US will tumble by at least 10pc in 2008 - on top of a 20pc slump in premiums this year.
They forecast the sharp falls as they headed out to Monaco, where they meet over the next few days to estimate demand for next year's policies. The annual Monte Carlo Rendezvous is the most important event in the industry's calendar where reinsurance companies, which provide cover to insurance businesses, unveil their demands for 2008. Insurance companies tend to pass on any premium changes to their policyholders.
Grahame Chilton, chief executive of the world's third largest reinsurance broker Benfield, said despite some major hurricanes such as Felix, this has been a benign storm season.
"In 2007, catastrophe reinsurance fell by around 5pc and insurance was off by more than 20pc,'' he said. "Without a major loss, we are expecting a reduction of between 5pc to 10pc for reinsurance and for insurance, much more.''
It is thought insurers at Lloyd's of London could reduce the maximum amount of business they can underwrite in 2008 as a result of the sharp premium falls. This could lead to total capacity at the world's largest insurance market dropping from a record level of pounds 16.1bn.
Although a quiet hurricane season could lead to record profits, a fall in prices combined with the negative impact of a weak dollar may lead to takeover activity in the sector. Mr Chilton said: "There will be further consolidation.''
He said the growth of capital markets is likely to continue, with more demand for catastrophe bonds, which give investors a generous interest rate if they take on risk. "For the first time in 2007, cat bonds were more competitive than reinsurance,'' he said.
Stephen Catlin, chief executive and deputy chairman of Catlin - the largest syndicate in Lloyd's - agreed the relationship between reinsurance and capital markets will be a major discussion point. "Some people are always quite protective of their own position,'' he said "But I think there is not enough capital in the reinsurance market to pay for the big exposures in places like Florida. As such, using the capital markets as a buffer is evidently sensible.''
Showing posts with label Premiums. Show all posts
Showing posts with label Premiums. Show all posts
Monday, September 17, 2007
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.
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.
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