Retro Market Sees Capacity Shrinking as Rates Rise
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Copyright 2009 A.M. Best Company, Inc.All Rights Reserved BestWire
March 3, 2009 Tuesday 10:02 AM EST
439 words
Retro Market Sees Capacity Shrinking as Rates Rise
Meg Green
OLDWICK, NJ
The retrocessional market may or may not be the tail that wags the dog, but there's no doubt that capacity has shrunk, while rates and demand have risen.
Some industry watchers are expecting that as rates rise in the retrocession market, so, too, reinsurance rates, and eventually primary rates, will also rise. Also, as capacity in the retro market dwindles, so, too, will reinsurance capacity and eventually primary capacity shrink.
Bart Hedges, president and chief underwriting officer, of Greenlight Re, said, "Retro is the tail that wags the dog. When the insurance market hardens, retro is the first area to experience the prices hikes, and when the market softens, retro is generally the last area to suffer."
Greenlight Re writes property catastrophe, marine and casualty retro, as well as reinsurance for various other lines of business.
"I would describe the Jan 1, 2009, renewals for retro deals as retro-writer friendly," Hedges said. "There is a very limited amount of capacity in the retro market as a whole, capacity is leaving, and there seems to be little or no new capacity entering."
For property catastrophe retro, renewal prices for peak zone capacity were up anywhere from 10% to 25%. For casualty retro, the price increases were less drastic, say up 5% to 15%, unless the program experienced loss activity, Hedges said. The marine market was difficult to measure because so few deals were actually completed, he said.
"I also believe that many buyers of property retro were unable to place as much capacity into the market as they would have liked and will be faced with coming back to the market in the future or cutting back writings," Hedges said.
Kate Vacher, director of underwriting for Aspen Insurance, agreed. "One factor is the price volatility in retro. The other is the lack of capacity, which will force a reduction in reinsurance capacity."
On the other hand, Adrian Stewart, head of Guy Carpenter's global retrocessional specialty practice, said the retro market is too small to wield that much influence over the industry.
Guy Carpenter estimates the capacity of the retro market is down 15% to 20% from 2008, when it estimated the market to have $7.5 billion in capacity.
"Today, the retro market is usually a first indicator of a hardening market. The pain is normally seen in the retro market first," Stewart said. "But if we didn't have a $11.5 billion Ike loss, and a global financial crisis, we wouldn't be talking about increasing rates today. Retro might wag still, but it's not significant enough to give the market direction."
(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)
March 4, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
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March 3, 2009 Tuesday 10:02 AM EST
439 words
Retro Market Sees Capacity Shrinking as Rates Rise
Meg Green
OLDWICK, NJ
The retrocessional market may or may not be the tail that wags the dog, but there's no doubt that capacity has shrunk, while rates and demand have risen.
Some industry watchers are expecting that as rates rise in the retrocession market, so, too, reinsurance rates, and eventually primary rates, will also rise. Also, as capacity in the retro market dwindles, so, too, will reinsurance capacity and eventually primary capacity shrink.
Bart Hedges, president and chief underwriting officer, of Greenlight Re, said, "Retro is the tail that wags the dog. When the insurance market hardens, retro is the first area to experience the prices hikes, and when the market softens, retro is generally the last area to suffer."
Greenlight Re writes property catastrophe, marine and casualty retro, as well as reinsurance for various other lines of business.
"I would describe the Jan 1, 2009, renewals for retro deals as retro-writer friendly," Hedges said. "There is a very limited amount of capacity in the retro market as a whole, capacity is leaving, and there seems to be little or no new capacity entering."
For property catastrophe retro, renewal prices for peak zone capacity were up anywhere from 10% to 25%. For casualty retro, the price increases were less drastic, say up 5% to 15%, unless the program experienced loss activity, Hedges said. The marine market was difficult to measure because so few deals were actually completed, he said.
"I also believe that many buyers of property retro were unable to place as much capacity into the market as they would have liked and will be faced with coming back to the market in the future or cutting back writings," Hedges said.
Kate Vacher, director of underwriting for Aspen Insurance, agreed. "One factor is the price volatility in retro. The other is the lack of capacity, which will force a reduction in reinsurance capacity."
On the other hand, Adrian Stewart, head of Guy Carpenter's global retrocessional specialty practice, said the retro market is too small to wield that much influence over the industry.
Guy Carpenter estimates the capacity of the retro market is down 15% to 20% from 2008, when it estimated the market to have $7.5 billion in capacity.
"Today, the retro market is usually a first indicator of a hardening market. The pain is normally seen in the retro market first," Stewart said. "But if we didn't have a $11.5 billion Ike loss, and a global financial crisis, we wouldn't be talking about increasing rates today. Retro might wag still, but it's not significant enough to give the market direction."
(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)
March 4, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
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