Price increases during the July reinsurance renewal period are likely to be limited to loss-affected sectors unless there is further significant insured loss for the industry, predicts Fitch Ratings.
“Loss-affected sector refers to the geographic markets and insurance classes that were exposed to major catastrophe events in 2011, including Thailand, Japanese and New Zealand,” said Fitch Insurance Group Director Martyn Street.
Fitch also predicts that renewals in July will predominantly correspond to U.S. exposure, but pricing movements are expected to follow the same trend as April’s renewal period, which heavily related to Asian markets.
“The July renewal season focuses on national programs in the United States, general property with some CAT,” Street told Insurance Networking News.
Different parts of the world renew at various times of the year. April is the customary renewal period for Asia, June 1 is the renewal period for Florida because of hurricane season and standard programs renew in January for the United States. and Europe, according to the Insurance Information Institute.
“Although prices are higher, coverage remains affordable and available on a global scale,” said Bob Hartwig, president of the Insurance Information Institute. “It is a steady and stable environment that includes some risk sensitive increases.”
Figures from Munich Re on Tuesday revealed a 35-percent increase in Japanese earthquake reinsurance prices last month with flat pricing in other regions and sectors restricting overall price increase to 5-percent, according to Fitch.
“It’s not surprising the market is continuing to work through the record global catastrophe losses of 2011,” Hartwig told Insurance Networking News.
In its release, Fitch ratings stated that an insured loss of more than $50 billion would reduce capital levels to such an extent that reinsurers would attempt to increase premium rates across their entire portfolios. A loss of this size could also trigger a negative rating outlook for the reinsurance sector as a whole.
“The most likely loss in the near term would be a Category 5 hurricane making landfall over a heavily insured area of the United States, such as the Gulf of Mexico or Florida,” Street said.
In 2011, insured losses amounted to $108 billion globally compared to $32 billion in the United States, according to the Insurance Information Institute.
“There will be additional firming through 2012 even assuming no major CAT losses will occur this year,” Hartwig said. “Should we have large scale catastrophe losses, such as large scale hurricane losses, it would not occur until late in the third quarter, and the impact of that wouldn’t have an effect on renewals until 2013.”
While casualty pricing was flat during the April renewal period, a marked upturn is likely to occur only when development of reserves from prior underwriting years return to a deficit, according to Fitch.
“There’s not a lot of reinsurance capital or new reinsurers coming into the market,” said Hartwig. “There’s still ample capital in the market.”
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