Significantly improved risk management practices within the reinsurance companies was again identified as a core reason why the market coped so well with a tricky year and is able to offer reinsurance buyers continuity in 2012.

Guy Carpenter did report, however, that the January 1 renewals saw a shift in industry behaviour as both insurers and reinsurers implemented more sophisticated and customised approaches to risk assessment and mitigation.

In its 2012 global reinsurance outlook, Catastrophes, Cold Spots and Capital: Navigating for Success in a Transitioning Market, the broker, that is part of the Marsh group, reported that reinsurers were in a position to undertake a 'major review' of pricing and underwriting going into the renewal season. "This led to significant market fragmentation and increased market volatility at January 1," it stated.

The result was wide-ranging rate movements at national, regional and even local levels, depending on loss experience and exposure perceptions. The broader reinsurance market experienced mixed renewals, said the broker.

"Despite the prospect of sustained low interest rates, rate movements for casualty lines continued to be subdued. Most other lines also saw moderate price changes, with increases and decreases in the low single digits," added Guy Carpenter.

David Flandro, Global Head of Business Intelligence, said during a press conference in London earlier this week: "Near-record catastrophe losses that were second only to 2005, catastrophe model changes and a challenging macroeconomic environment put considerable pressure on the industry in 2011.

Unlike 2005, however, reinsurers were well prepared. They were able to pay claims, and the market did not suffer significant dislocation. Today, the sector remains fully functional and adequately capitalised, in part due to the strengthening of enterprise risk management practices over the last few years."

More specifically Mr Flandro and Mr Frankland said that many of the historic catastrophe losses suffered in 2011 occurred in many areas not previously considered 'peak' risks. The broker pointed out that as carriers continue to penetrate new growth regions, 'cold spot' losses are expected to increase.

The brokers also stressed that while there has been no violent reaction to the catastrophe losses, the macro economic and financial conditions will have a more gradual impact on underwriting strategy.

"The eurozone debt crisis and accompanying global deleveraging, together with reduced gross domestic product (GDP) estimates, low investment yields and increased investment volatility, continue to exert pressure. Carriers can no longer rely on investment income or reserve releases to compensate for underwriting weakness. As a result, accident year underwriting is now crucial to achieving profitability," stated the broker.

The arrival of important vendor catastrophe model changes also complicated the scenario towards the end of last year. But, fortunately for many companies in the US and the Caribbean, the new model changes were already reflected in underwriting processes 'to varying degrees' based on previous loss experience, stated Guy Carpenter.

In Europe, however, there was general agreement that the full impact of changes reflected in new versions was not fully integrated at year end.

The broker pointed out that, in spite of all of these challenges, underwriters have demonstrated their resiliency and remain well capitalised.

"Although much of the sector's excess capital was reduced at mid-year, dedicated reinsurance sector capital finished 2011 near the same level where it began. Improvements in enterprise risk management (ERM) and effective capital management contributed to the success and strength of the industry. The sector is increasingly assessing non-traditional reinsurance products with growing interest in capital markets solutions. This trend is expected to continue in 2012 with significant growth anticipated in the catastrophe bond and industry loss warranty (ILW ) markets," stated the report.

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