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Reinsurance rates not as high as expected

Property catastrophe rates increased   for midyear renewals, but not as much as reinsurers had hoped and insurers had feared, brokers and reinsurers say.

Industry experts say reinsurance rates generally increased in the 10% to 20% range. Reinsurers had hoped for higher increases, but were thwarted in part by primary insurers’ push-back amid adequate capacity.

Meanwhile, the casualty market remains relatively flat, observers say.“I think folks expected more hardening at June 1 and July 1 than what materialized,” said William H. Eyre Jr., managing director and chief executive officer of Philadelphia-based Towers Perrin Reinsurance. “But overall, property prices are moving up and casualty reinsurance appears poised to be headed that way in 2010,” although “on a fairly moderate basis.”

“Frankly, I’m surprised by it because it just seemed like capacity would be tighter, everybody would be pushing for more rates based on reduced investment income and everything else, and I haven’t seen it,” said Rod Fox, CEO of intermediary TigerRisk Partners L.L.C. in Greenwich, Conn.

Joseph M. Fedor, executive vp of intermediary U.S. Re Corp. in New York, said midyear renewal rates were not as high as anticipated earlier because of “reluctance on the part of buyers to pay such increases, and also (a move) to not purchase the level of limits they might have purchased in the past, leaving a surplus of capacity available, which then acted as a competitive factor to reduce prices.”

“The financial markets steadied somewhat since the autumn” and balance sheets have stabilized somewhat as well, said Chris Klein, head of the business intelligence group at Guy Carpenter L.L.C. in London.

Neither the Tallahassee-based Florida Hurricane Catastrophe Fund nor the Austin-based Texas Wind Insurance Assn. renewed their reinsurance programs. This “dampened the hardening that might otherwise have occurred in the marketplace,” said Bryon G. Ehrhart, chairman of Investment Banking Group and CEO of Aon Benfield Analytics at Aon Benfield in Chicago. “But,- in general, the market has, thankfully, been functional,” Mr. Ehrhart said. “Reinsurers maintained the capital necessary to maintain an orderly market.”

“There’s a continuing disconnect between reinsurance and primary companies, and what is acceptable pricing for catastrophe business,” said Richard DiClemente, president and CEO of New York-based THB Intermediaries Inc.

There is “definitely push-back from the primary side on reinsurance pricing and, because of the competitive market…they will continue to write business even if they can’t match up their pricing with the pricing of reinsurance. They’ll simply retain the business if they have to,” Mr. DiClemente said.


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