On 31st December reinsurance broker Willis Re published its 1st View report on the January renewals and current market conditions.

The report is entitled ‘Reinsurers Clear the Sandy Hurdle’.

Insured losses arising from the catastrophic events of 2012 are set to reach roughly USD 65 billion. The tally is moderate compared to 2011, which saw historic insured losses of over USD 120 billion due to record earthquakes and flooding, but is above the average of the last 10 years. Most reinsurers are not facing any material capital impact from the insured losses of 2012 and remain within their annual catastrophe budgets. This has resulted in stabilisation of rates on property classes and no blanket rate increases at 1st January, according to the report

In general, rates for International Property Catastrophe business are flat to -5% on a risk adjusted basis and rates for U.S. Property Catastrophe risks are flat to -5% on loss free accounts, and +10% on loss impaired accounts.

In the report’s opening letter, Peter Hearn, Chairman, Willis Re and John Cavanagh, CEO, Willis Re comment: “In the absence of Superstorm Sandy, reinsurers would have found it difficult to resist buyer pressure for further concessions.”

According to the report, in spite of the addition to the market of new capital and promising 2012 underwriting results, it is the repercussions of the global financial crisis which still influence conditions and pricing in the sector: investment returns are dwindling, primary companies in most mature markets are finding growth difficult and larger primary insurance groups are restructuring the way they buy reinsurance.

The report highlights that 2012 has been particularly difficult for the Marine market, which has suffered one of its worst underwriting years in recent history. Already suffering from the Costa Concordia and the deterioration of the Rena loss from 2011, Superstorm Sandy is widely expected to be the largest ever Marine loss with a disproportionate impact on the Marine market.

The report states that there are large losses coming from yachts and pleasure craft, general cargo, imported cars, specie and inland Marine. In addition, the 1st January 2013 Marine renewals are especially late due to uncertainty surrounding losses emanating from Sandy.

Many buyers have increased retentions on loss hit programs to help mitigate rate increases which are a minimum of +15%, even on loss-free offshore Energy excess of loss contracts.
The Protection & Indemnity (‘P&I’) market is seeing minimum of 10% increases with the International Group Reinsurance Programme up 40%. P&I Clubs are passing on increased reinsurance costs via original General Increases in the range of +7.5% to +10%.

Other renewal trends highlighted in the report include:

The capital base of the global reinsurance industry remains adequate and has benefitted from an accelerating inflow of new capital, particularly from long term investors drawn to event risk as an alternative non correlated investment class
It is a competitive environment for catastrophe bond issuance with third party capital activity picking up and broadening as investor demand outstrips issuer supply
In longer tail classes, frequency and severity of losses continue to decline and buyers continue to retain more
Whilst unlikely to impact retrocession market significantly, Superstorm Sandy slowed any potential downward rate movement. With clients who are buying additional vertical cover also willing to take higher retentions to maintain the same spend, limits, retentions and risk-adjusted pricing were flat in general
The U.K. Motor excess of loss market has faced very difficult and late renewals with substantial changes to both terms and conditions driven by loss activity and capacity withdrawal
The full document is available via the link