A tough economic environment, combined with high catastrophe losses and many other uncertainties, has left insurers and reinsurers struggling to come to terms with a complex business environment heading into the January 1 renewals.
Despite its shaky economy, the US remains the most important reinsurance market in the world thanks to its high natural catastrophe and liability exposures and mature primary insurance market. It accounts for just over half of global reinsurance premiums. But apart from the formidable Berkshire Hathaway, few domestic reinsurance companies remain on US soil, leaving Bermuda, London, Europe and other international markets to fight over the spoils.
This competition has, in recent years, been responsible for continuing downward pressure on rates, causing some players to exit the market. Now, with major international catastrophe losses in the first half of the year, a new catastrophe risk model pushing cedants to purchase more protection, dwindling prior-year reserves and low investment returns, reinsurers are determined to make an underwriting profit.
Whether the 10 to 15 percent rate rises witnessed during the mid-year renewals can be improved upon at year-end is questionable, particularly given new sidecar capacity entering the Bermuda market. Those reinsurers seeking out new opportunities in the saturated market are likely to focus on specialty lines—which continue to offer a better return—as well as continuing to satisfy the insatiable demand for catastrophe cover.
Insurance, reinsurance, US