CAT losses cause uneven impact on 2006 renewals

Last year’s unprecedented catastrophe losses had an uneven impact on pricing and capacity for 2006 reinsurance renewals, according to Benfield’s recently published renewal report, ‘Reinsurance Market and Renewals Review – Swings and Roundabouts.’

Benfield’s 82-page report indicates that hurricanes occurring in 2005 caused dramatic increases in U.S. reinsurance rates, particularly in the property catastrophe business in loss-affected areas and in the non-marine retrocession and marine reinsurance markets.

In other areas, the hurricanes had a generally stabilizing influence, reversing the downward price trend.

“The immediate impact of the hurricane season fell short of the market-changing event some expected,” Grahame Chilton, chief executive of Benfield, says. “However, we believe that the market has changed.

“Continuing development of 2005 losses, recalibration of catastrophe models and the shrinking appetite for peak exposures are some of the factors which will exert further upward pressure on pricing.”

Chilton believes reinsurance capacity is likely to be significantly tighter for the July 1, 2006 renewals and beyond. This, he continued, is likely to lead to a general re-rating across global markets.

Loss-affected property catastrophe treaties in the U.S. experienced the most substantial price increases; some increased by more than 100%, according to the report.

Loss-free property business in the U.S. was up between 10% and 20%, compared with price decreases of up to 20% in January 2005.

A worldwide post-renewal survey of Benfield brokers conducted during the first two weeks of January 2006 found that cost was the primary concern for 33% of reinsurance customers, with security and ratings (27%) and coverage, terms and conditions (23%) also being referenced as significant issues.