Reinsurers Cautious About Portfolio Exposures Following Huge Cat Losses in Non-Peak Risk Areas
|By Iris Lai|
|A.M. Best Company, Inc.|
January reinsurance renewals exposed concerns about the transparency of underwriting risks following a year in which substantial
About 70% of the global economic losses of
One lesson from the events was the lack of transparency for exposure limits and adequacy of programs and pricing, according to Farny.
"Everyone is eager to better understand what the exposures really are," said Farny. Given the extent of losses related to the
A significant trend for the 2011 January reinsurance renewals was the "cold spots" phenomenon, which refers to exposures that were inadequately modeled and where the severity of losses was unexpected, according to a report by reinsurance intermediary
With global insured catastrophe losses in excess of
Last year's events outlined the limitations of the current understanding of natural catastrophes. "This realization has led some reinsurers to question the benefits of diversification, which is leading to capacity constraints in second- and third-tier catastrophe-exposed territories," said
Natural catastrophe was on top of the agenda for January renewals discussions, said Farny.
Reinsurers are looking cautiously at their portfolios and accumulated risks. Some reinsurers have to reduce their risk appetite to some extent or entirely on natural catastrophes with more balanced portfolios. Farny said
Reinsurance capacity has left the
The event has led to discussions on dealing with catastrophe events with such immense impacts in global markets, noted Farny.
"Insured and reinsured losses from
Average rates in the catastrophe-hit
Generally, Farny said there has been an upward pricing trend and loss-free areas have also experienced some rate hikes. In
Large payouts for natural catastrophe losses, along with growth in markets such as
From a capital perspective, global reinsurers "are well-capitalized and capable of absorbing significant losses from a combination of events," said
Recent events such as global catastrophes, increased volatility of assets and updated catastrophe models have brought about a change in primary insurers' perception of risks. "This increased awareness of risk, combined with growing regulatory pressures on solvency margins, appears to have turned the tide on demand for reinsurance, especially in loss-prone regions of the world," said
Asian countries are moving toward solvency regimes, with regulators implementing solvency-based measures, said Farny. For catastrophe risks, some governments are looking to the establishment of catastrophe funds.
Listen to the interview with Farny at http://www.ambest.com/media/MA.asp?lid=latestaudio&vid=farny212
|Copyright:||(c) 2012 A.M. Best Company, Inc.|