Thursday, 10 May 2012
Fitch expects July rate rises to be limited
Fitch has said that it expects price rises in the upcoming July reinsurance renewals to be limited and restricted to loss-affected sectors and geographies. The rating agency added that it would take an insured loss of more than $50bn to reduce capital levels throughout Fitch's monitored universe of reinsurers to such an extent that the market would attempt to increase premium rates across entire portfolios.
Renewals in July are predominantly related to US exposure whereas the April renewals are more focused on Asian markets.
Figures from Munich Re revealed a 35% increase in Japanese earthquake reinsurance pricing in April. But relatively flat pricing in other regions and sectors limited the overall increase in prices to around 5%.
Other reinsurers including Scor, Swiss Re and Hannover Re and the major global reinsurance brokers have reported similar trends, said Fitch.
“We expect to see pricing on US wind-exposed reinsurance programmes rise in the July renewal period, due to near-record tornado-related losses in 2011,” said the rating agency.
Property reinsurance prices, excluding wind-related damage, are likely to witness single-digit price increases, it added.
Pricing in markets that have already experienced big increases, such as New Zealand property, are likely to rise further, although the increase will not be on the same scale as the 100% rise in 2011, Fitch continued.
It expects casualty pricing to remain flat, as in the April renewal period.
“Casualty reinsurance can be particularly challenging in a protracted period of relatively high inflation and low investment yields. This is because claims can arise many years after the cover was written, resulting in payouts that are significantly boosted by inflation over the intervening years and are not offset by investment returns. A marked upturn in casualty pricing is only likely to occur when development of reserves from prior underwriting years returns to a deficit,” explained Fitch.
A loss of this size would also be likely to trigger a negative rating outlook for the reinsurance sector as a whole, concluded Fitch.