Monte Carlo 8 September 2003 Following the hardest reinsurance market in living memory, many buyers and sellers of reinsurance expect to see premium reductions in some lines of short tail business in 2004, according to a Europe-wide survey, Conflicting Dynamics of Reinsurance: Holding the Line?, conducted by Aon. The long-term trend for premium rates however will depend on reinsurers sustaining their resolve to maintain profit levels through their underwriting, in the face of increasing pressure for market share.
The survey, conducted in France, Germany, Italy, Spain and the UK, found that reinsurance buyers are:
- Expecting premiums to fall in property catastrophe and some personal lines.
- Maintaining security rating as the leading driver of reinsurer selection.
- Concerned that their choices for reinsurance are becoming more restricted and that increased regulation will only hasten this trend.
Reinsurance sellers are:
- Expecting to see premiums for short tail property exposures soften, but liability premiums are expected to continue to harden.
- Insistent that they do not want to participate in the market softening but may see the prime objective of profitability overridden by more influential market factors such as supply and demand.
- Seeing the views of rating agencies as crucial but, in some cases, critical of their methodologies.
Commenting on the findings, Ross McKenzie, Chairman Aon Re International, said: Much of the evidence from our key reinsurance markets points to the onset of a soft market in some lines of short tail business, particularly property and in some personal lines. Reinsurers are coming under intense pressure to cut rates in order to maintain market share and levels of premium income, pressure which will thoroughly test their resolve to maintain current levels of underwriting profit in the 2004 renewals.
Reinsurers, still battling to repair their damaged balance sheets and beef up reserves, will be anxious to keep rates at 2002 levels, McKenzie added, though the supply and demand equation is likely to fall in favour of buyers, who, in the absence of any significant losses or reduction in industry capacity, will be anticipating some favourable rate reductions.
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