Market response: midyear reinsurance renewals show signs of softening as companies look for fresh ways to deploy excess capital.
1. The middle of the calendar or academic year.
a. An examination given in the middle of a school year.
b. midyears A series of such examinations. renewals for global property catastrophe reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. are being affected by the capital freed up by Florida's newly expanded, state-sponsored catastrophe reinsurance fund.
Catastrophe modeler Risk Management Solutions is now projecting the cost of a 1-in-100-year loss to be around $67 billion, said Paddy Jago, chief executive officer of broker Willis Re. Previously, high pricing prevented primary companies from purchasing up to their 1-in-100-year number, but the very competitive reinsurance provided by the Florida fund now has primary companies looking to buy extra cover with the money they save on lower layers.
That extra cover could provide comfort against predictions of heightened storm activity. Forecasters at the National Oceanic & Atmospheric Administration said there is a 75% chance of an above-normal hurricane season Hurricane season refers to a period in a year when hurricanes usually form. For more information see: Tropical cyclone#Times of formation.
For a lists of past seasons, see:
National Oceanic and Atmospheric Administration
Noun 1. NOAA - an agency in the Department of Commerce that maps the oceans and conserves their living resources; predicts changes to the earth's environment; forecasters say seven to 10 of those storms will become hurricanes, with three to five reaching Category 3 or higher.
Most insurers and reinsurers that cover Florida renew on June 1 rather than July 1 in anticipation of the Atlantic hurricane Atlantic hurricane refers to a tropical cyclone that forms in the Atlantic Ocean usually in the Northern Hemisphere summer or autumn, with one-minute maximum sustained winds of 74 mph (64 knots, 33 m/s, 119 km/h). season. Any restructuring of the newly expanded Florida Hurricane Catastrophe Fund will have an impact on programs, although perhaps not as much as initially thought, Jago said. The Florida fund only protects aggregate losses up to $38 billion, he said.
Jago said many in the industry are surprised reinsurance rates for Florida have not softened as much as expected. Still, he said there has been a softening in the reinsurance market in all critical catastrophe territories, including the Northeast United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , with many of the Jan. 1 and April 1 cat covers--partly placed in 2006--being filled out.
Florida is the metaphorical elephant in the living room, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. Sean Mooney Sean Mooney is a former World Wrestling Federation play-by-play announcer. He was born and currently resides in Phoenix, Arizona. WWF Career
Mooney debuted on the May 15, 1988 edition of WWF Wrestling Challenge. He replaced announcer Craig DeGeorge. , principal of marketing and communications at the New York City New York City: see New York, city.
New York City
City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. office of reinsurance broker Guy Carpenter Guy Carpenter was fictional character in the Australian soap opera Neighbours played by Andrew Williams from 1991 to 1992. Family Tree
Story intended to elicit a strong feeling of fear. Such tales are of ancient origin and form a substantial part of folk literature. They may feature supernatural elements such as ghosts, witches, or vampires or address more realistic psychological fears. " with low capacity, "out of sight" rates and nervous cedents. Since then, matters have improved, with January 2007 rates below what they were in July 2006. "Reinsurance is more disciplined than the primary market," Mooney noted, "and the market held firm all through the fall of 2006 into December. Then, in the last week of the year, it fell apart in prices, terms and conditions."
A Munich Re Munich Re AG, in German Münchener Rück AG (ISIN: DE0008430026), is the world's second largest reinsurance company with over 5,000 customers in 160 countries and has its headquarters in Munich, Germany. spokesperson said when it comes to Florida, the question is not just what is going on in the state, but what would happen with the capital now free due to the Florida fund, and if this could be invested in other fields, which could increase pressure on prices.
* Michael Liebowitz RIMS President
The historic insurance cycle will continue. It "would take a major catastrophe to change the structure."
* Janice Ochenkowski Incoming RIMS President
Suggested new capital requirements-from rating agencies and regulators--may impact the cycle, making peaks and valleys less severe.
* Ralph E. Jones III Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Arch Insurance Group
Expects more rate deterioration in casualty lines and excess liability, and less in the property arena, especially in quake- and wind-exposed areas.
* John Lumelleau CEO of Lockton Cos.
"The coastal regions would always pose a difficulty to any declining rates just because of the increased potential for natural disasters. So, yes, in the middle part of the United States, you'd see more impact of a soft market than you would on the coast."
* Shivan Subramaniam Chairman and CEO of FM Global
The June/July reinsurance markets will probably come down a little lower than they were in January 2007. "That's assuming no disaster occurs between now and then, because all of the insurers and reinsurers have been very successful and profitable in 2006, and all of that would have an impact on what the rates are going to be."
* Anne Marie Roberts President and CEO of BMS BMS
Bachelor of Marine Science Intermediaries Inc.
"Capacity is holding steady as prices continue on a modest downward path. From a property perspective, coastal areas are still growing and still seeking coverage both on a primary as well as reinsurance basis. With the influx of alternative reinsurance capacity, we may see a shift downward on the casualty side."
* Chris O'Kane CEO of Aspen aspen, in botany
aspen: see willow.
Aspen, city, United States
Aspen (ăs`pən), city (1990 pop. 5,049), alt. 7,850 ft (2,390 m), seat of Pitkin co., S central Colo. Insurance Holdings
"The all-time high-water mark high-water mark
1. Abbr. HWM A mark indicating the highest level reached by a body of water.
2. The highest point, as of achievement; the apex. for wind-exposed property cat in the U.S. was reached in June of last year. l-here's a bit more supply now. Demand is flat, even down a bit, which is going to lead to lower pricing. But we feel pretty good about the price levels we are achieving. It's a few points off the all-time high, but it's still very attractive pricing."
* Midyear renewal rates show signs of softening.
* Buyers of reinsurance have been able to purchase more coverage.
* That additional coverage could help primary insurers as they enter the heart of hurricane season.
RELATED ARTICLE: Bromley: reinsurance market changing rapidly.
The reinsurance market has been changing rapidly since the record hurricane losses of 2005, with reinsurers often turning to new capital strategies to protect their balance sheets, rather than surrender any of their hard-won underwriting Underwriting
1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt).
2. The process of issuing insurance policies. discipline.
This has led to a "disconnect disconnect - SCSI reconnect " between reinsurers and the primary market, and an acceleration by the former into capital markets, said Geoffrey Bromley, chairman of reinsurance broker Guy Carpenter & Co.'s European and Asian operations.
Underwriting discipline is holding up in reinsurance overall, he said.
Discipline in the reinsurance market is notable, particularly in light of the "benign" 2006 season following record losses the previous year, said Bromley. Reinsurance discipline and the growing disconnect with the primary market are feeding efforts among reinsurers to find ways to manage their risk capital, he said.
"To a certain extent, we're seeing an element of de-risking in reinsurance portfolios," said Bromley. "Extremes of volatility that were clearly evident in the market from the results of 2005 have been diminished."
As rating agencies changed their metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. related to catastrophe risk, elements of the market had significantly less risk appetite in early 2007, said Bromley.
There is also a greater trend toward diversification in reinsurance, as companies move away from the specialist model and spread their risks among a greater variety of lines. "Reinsurers are looking to become more geographically and product diversified," said Bromley.
A third notable change in reinsurance markets has to do with the nature of capital coming in, he added. "We've seen what I'd call a lot more temporary capital coming in" after 2005, Bromley said. "That has given a lot of people cause to ponder the most efficient capital models to write going forward."
Bromley predicts the market will see a greater variety of capital models deployed by reinsurers and a greater reliance on hybrid or temporary capital structures to cover specific risks. Temporary capital was seen in a number of reinsurance sidecars Reinsurance sidecars, conventionally referred to as Sidecars, are financial structures which are created to allow investors to take on the risk and return of a group of insurance policies (a "book of business") written by an insurer or reinsurer (henceforth re/insurer) and earn the created since 2005. The sidecars, which targeted specific risks in a reinsurer's portfolio, last a year or two, sometimes longer.
Other reinsurance startups since 2005 are intended to be permanent, though the nature of their initial investors--hedge funds, private equity--may lead some in the market to view them as temporary, said Bromley. Such investors usually take the view that they will get out of the startup when the market is right, though the new reinsurer re·in·sure
tr.v. re·in·sured, re·in·sur·ing, re·in·sures
To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. is expected to continue on its own.
"But the sidecar 1. sidecar - Synonym slap on the side. Especially used of add-ons for the late and unlamented IBM PCjr.
2. sidecar - The IBM PC compatibility box that could be bolted onto the side of an Amiga. example is a clear statement on behalf of those investors that they intend to stay in the market only so long as prices are of an adequate level, and they will review that position depending on market conditions in a year or two," he said. "It's a more flexible supply that recognizes the ebb and flow the alternate ebb and flood of the tide; often used figuratively.
See also: Ebb of demand."--David Pilla
RELATED ARTICLE: Have insurers learned from past mistakes?
Few industries have had as good a year as insurers did in 2006, but Brian O'Hara of XL Capital warns against taking the current market for granted. Losing the focus on underwriting, combined with an upsurge in catastrophes, could quickly make insurers victims of their own success, he said.
"I think we find ourselves at an interesting time in the industry, one that I would actually call a period of equilibrium," O'Hara said. "Many people, analysts, refer to the current state of the market as a soft market. It depends on your definition, but certainly it is softening from where it had been, which had been a rather hard market for quite a while. I just think it's normal competition at this point."
There are a number of drivers that influence underwriting behavior, including interest rates, regulation and rating agency attitudes, which have changed from the last soft market of the late 1990s to 2001, O'Hara said.
One factor--excess capital--is being handled differently today.
"Almost universally, managers are buying their stock back. So they're taking the excess capital off the table rather than pursuing ill-conceived strategies of growth where there isn't any natural growth. Acquisition can always be a good strategy, but it doesn't seem to be one that's quite yet popular," O'Hara said.
Another factor that hasn't changed is human nature.
"Fear and greed are the main drivers of business behavior, and fear has been in the driver's seat driv·er's seat
A position of control or authority. for some time," O'Hara said. "There's a lot of reason to have fear. On the other hand, though, we've had five good quarters in the industry, and one thing our industry has never done well with is success. We have been rather victims of success."
O'Hara thought this cycle could be different.
"With low interest rates, you don't have the drive for cash flow underwriting that often leads to bad underwriting, and in the post-Sarbanes, post-Spitzer world there is much greater transparency in underwriting and management practices in the industry," O'Hara said.
So it's an interesting time for insurers, O'Hara said. "Investment analysts in the past always applauded growth at any time for any reason. Now, actually, you have to demonstrate that if you're growing, you're doing it with disciplined underwriting, and profitably," he said.
"I predict companies will continue to show good results through the year. The one wildcard See wild cards and wildcard mask. being the hurricane season, and of course earthquakes don't know Don't know (DK, DKed)
"Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party. a season, and terrorism is quiet but it hasn't gone away. So there are a number of reasons for us to stay awake at night and keep fear in the driver's seat and keep greed in the back seat. As long as we do, I think we're going to have a healthy industry," O'Hara said.--Meg Green
RIMS Benchmark: Market Softening
2006 was an extraordinary year for most insurers and reinsurers, principally because there were no major catastrophes.
During that year, the cost of commercial insurance fell an average of 9.2% and continued to drop through the first quarter of 2007, according to the Annual Benchmark Survey from the Risk and Insurance Management Society Risk and Insurance Management Society, Inc. (RIMS), founded in 1950, is a membership-based industry trade group, representing nearly 4,000 industrial, service, nonprofit, charitable, and governmental entities and serves more than 10,000 risk management professionals around the .
Average premiums for directors and officers' liability fell 7.7% in the first quarter, and by more than 12% in the last two quarters of 2006 combined. Workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. premiums fell 3.8% in the first quarter, according to the survey. While premiums for properties in catastrophe-exposed regions rose sharply in 2006, insurance costs for property insurance in other regions, and for most other lines of business, continued the downward march begun in 2004.
Property insurance was the only line that hardened, with rates increasing by 0.8%.
Hard Market Strength
Hard markets are periods marked by high growth in net written premium, as shown in the shaded areas of the chart below. The Insurance Information Institute predicts that the post-Hurricane Katrina period (2006-2010) will look similar to the soft market after Hurricane Andrew This article is about the 1992 hurricane; there was also a Tropical Storm Andrew during the 1986 Atlantic hurricane season.
Hurricane Andrew is the second-most-destructive hurricane in U.S. history, and the last of three Category 5 hurricanes that made U.S. (1993-1997).
Property/casualty lines showed various percentages of rate decreases in May. Commercial Property -14% Business Interruption -12% Inland Marine -10% General Liability -14% Umbrella/Excess -14% Commercial Auto -9% Workers' Compensation -13% Prof. Liability -11% D&O Liability -12% Employment Practices -12% Fiduciary -6% Crime -7% Surety -5% Source: MarketScout Corp. Note: Table made from bar graph.