US P&C cat rates to rise up to 10%

The US property catastrophe rates are to increase between 5 percent and 10 percent in aggregate at the upcoming renewal periods, Moody’s said in a Dec. 18 report.

With substantial insured industry losses from the third quarter catastrophes and the expected losses from California wildfires in the fourth quarter, the reinsurance market is in transition.

After years of price declines, loss-affected accounts could see double-digit rate increases with price stabilization to modest firming in other regions. However, pricing momentum will be weaker than it was after the 2005 hurricane season due to substantial available capacity from both traditional reinsurers and alternative capital providers (collateralized retrocessions, catastrophe bonds, Industry Loss Warranty, and sidecars), according to the analysts.

Moody’s expects that the alternative market incurred substantial losses from the third quarter catastrophes. Analysts noted, however, that a number of vehicles are private and information is not publicly available.

A majority of retrocessional (retro) contracts renew on Jan. 1, and the retro market will be looking for significant rate increases, Moody’s said. Pricing, however, will be constrained as reinsurers decide whether to retain more risk net or write retro for their own account, depending on pricing and how much additional alternative capital enters the market. US property catastrophe reinsurance contracts generally renew in June and July, which will give primary insurers time to evaluate their catastrophe risk management programs. Moody’s expects that there will be higher reinsurance demand from some primary insurers to protect earnings.

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