The record catastrophe losses of 2005 have given actuaries new muscle in setting carrier underwriting policy, said reinsurance experts at an industry educational gathering yesterday.
Speaking at the Chartered Property Casualty Underwriters Society reinsurance forum yesterday in Philadelphia, the chief operating officer of a small mutual casualty company said that engineering a major turnaround was not enough to sustain any reinsurance price breaks this year.
Lanny Strain, executive vice president of Fire Districts of New York Mutual Insurance Company, said his organization was hit with nearly 30 percent reinsurance price hikes in both 2005 and 2006 despite improvement in his company's surplus picture. “The green years don't count. All they look at are the red ones,” he said. “Basically, the actuaries are now in charge.”
Mr. Strain's story served as one example of how reinsurance buyers and sellers are coping with the post-Katrina era in which rating agencies will now require them to be able to handle two one-in-250-year events at a time rather than just one.
Gerard Finley, chief casualty underwriting officer for Princeton, N.J.-based American Re, said the record 2005 losses have put the issue of risk accumulation on the radar screen of underwriters as never before.
“Loss costs, particularly for casualty lines, are so darn difficult to predict,” he said. “That has resulted in the muscles the actuaries have grown.”
Last year's passage of class action lawsuit reform by Congress appears to have sated its appetite for such measures, Mr. Finley said. “But a lot of states are active now and that could play an important role, particularly in some key states,” he said.
Benfield Inc. Philadelphia branch manager James Buysse said that as the ratings agencies increase capital requirements for both reinsurers and insurers, prices are bound to increase.
Primary companies will also be forced to lessen their overall exposure if they are forced to retain risk at the lower level while increasing reinsurance cover at the higher levels, he added.
Brad Kading, executive vice president of the Association of Bermuda Insurers and Reinsurers, said that having borne nearly one third of the 2005 catastrophe losses, the Bermuda companies are playing an ever increasing role in providing property catastrophe capacity.
In addition, the Bermuda Monetary Authority has recently moved to strengthen solvency regulation of the top class of Bermuda insurers and reinsurers, he said.
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