Economics Overshadows Underwriting as January Renewals Open New Year
|By David Pilla|
|A.M. Best Company, Inc.|
With the exception of catastrophe-prone accounts,
"What actually happened on
Boornazian said the market is "beginning to adjust" to the several ongoing factors that would all, individually, necessitate a market hardening. "But we are still only at the beginning," he said. "More change is needed to reach rate levels that are adequate for exposures, and the other external factors that affect our industry's profitability."
He added that in many areas, pricing remains at, or below, 1999 levels.
In its reinsurance market outlook for 2012, broker
The story of 2011 was one of catastrophes, capital, reserve releases and the economy, said
Coleman said capital was a big part of the way the year played out for reinsurers. The market started the year with about half a trillion dollars in capital, and "once the dust settles from the fourth quarter, we'll probably end up in about the same place," he said. "That probably puts some downward pressure on rates," he said.
Catastrophe-exposed accounts will see significant price increases, said Coleman. But other lines will be less affected, except by non-underwriting factors.
The broker noted that certain factors led to a muted January renewal season. Among them, some of the largest catastrophe-hit accounts won't renew until April, June or July.
Continuing low investment income and a dwindling of reserve redundancy releases that marked 2011 and previous years will have negative effects on reinsurer income, said Coleman. "There's not going to be that sort of 'get out of jail free' card in 2012," he said.
A dampened economic climate will work against underwriting profit as well. Coleman noted that with workers' compensation, for example, claims could rise as people lose their jobs. Workers who might have been reluctant to file a claim will more likely do so if they lose their job.
Coleman said January renewals showed a predictable hardening of rates in catastrophe-hit areas and those exposed to catastrophes that hadn't been it in 2011. But for the rest of the nonlife lines of business, rates are not moving much.
Asked about the 2012 renewals rounds yet to come, he said there should be some stability, but "the jury's still out" on possible hardening of rates.
"While this is a superficially logical approach, it has led to significant differences in rate levels which some buyers have found difficult to assimilate as they struggle to manage the margin between their original pricing and the cost of reinsurance," said
"The key to a sustained market hardening is much more likely to lie in the impact of the current economic turmoil in the euro zone and elsewhere and how this works through to diminish the capital bases of reinsurers,"
|Copyright:||(c) 2012 A.M. Best Company, Inc.|