1 October 2010 News

Brokers point to excess capital effects

Reinsurers find themselves with excess capital in a landscape that “looks more like 2007 than 2008”, according to Guy Carpenter, which predicted overall rate decreases in the property catastrophe reinsurance market.

Excess capital of about 8 percent in the balance sheets of the major reinsurers would lead to further rate decreases of 8 to 15 percent, apart from key high loss incidence regions such as Chile and in business lines such as offshore marine.

Meanwhile, Aon Benfield describes capital levels among insurers and reinsurers as being at an “all-time high”, leading to price reductions across most of the market.

Henry Keeling, president and chief executive officer of Guy Carpenter’s international operations, said: “In 2007, it was all about how to make excess capital productive and that’s where we are again today.

“Excess capital is being returned to investors in many cases. For some companies, this may be productive, but it might also be giving up a competitive advantage.”

Keeling added that reinsurers could instead place excess capital into areas such as new technology and emerging markets. “Returning capital does not make for profitable growth— innovation does,” he said.

In the first half of 2010, the non-life reinsurance industry saw an overall underwriting loss of $901 million compared to a gain of $2.4 billion in the same period in 2009.

Dominic Christian, co-chief executive officer of Aon Benfield, said: “Only 10 to 15 percent of the reinsurance marketplace, specific areas of the industry, will be subject to rate increases.”

Reinsurers, he said, need to prepare for a raft of new risks, from emerging market business lines to regulatory capital pressures.

Chris Klein, head of global reinsurance markets at Guy Carpenter, said: “Rates are falling, there is plenty of capital, and insurers and reinsurers are trying to figure out what to do with it. It almost feels like 2007 all over again.”

However, he pointed to factors that would support rate increases and that are “waiting in the wings”.

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