PROPERTY CATASTROPHE REINSURANCE RATES UP 8%, SAYS GUY CARPENTER

Catastrophe reinsurance prices rose by 8% at the January 1 renewals because of a shortage of available new capital and higher than average catastrophe losses in 2008, according to a report published today by reinsurance broker Guy Carpenter, a subsidiary of Marsh & McLennan Cos. Guy Carpenter global head of business intelligence Chris Klein said that existing carriers were generally sitting on large capital positions at the start of 2008, which enabled them to absorb the losses of the year. Guy Carpenter estimated that carriers lost 15% of their implied aggregate book value in 2008. In retrocession there was reduced capacity and higher prices, because “the market was constrained by an inability to replenish balance sheets as a result of the financial catastrophe”. Mr Klein also observed that there had been “wide differences in pricing”. In property-catastrophe, rates in the US rose by an average of 11%, while in Continental Europe the range was between 0% and 10%. In the UK the range was minus 2.5% to plus 5% (all rate references are risk-adjusted). In the Asian market, Guy Carpenter said that it was “witnessing increased reinsurer discipline”, noting that “in China, for example, snowstorm and earthquake losses caused reinsurers to press for more stringent pro rata terms and higher excess-of-loss rates”. In casualty there was a “notable lack of capacity”, with pricing up by an average of 5%, although “a number of programmes could not be placed at any reasonable rate”. Marine rates rose 10% to 15% on average, with offshore energy pricing being higher than this. The Gulf of Mexico continues to be perceived as a risky location for offshore energy, with prices rising to match. In aviation reinsurance, pricing stabilized. Meanwhile, protection buyers were seen to have moved from catastrophe bonds to Industry Loss Warranties (ILWs). Guy Carpenter predicted that “higher demand and a limited ILW capacity are likely to continue into 2009”.