Despite ample capacity and a good 2006, European reinsurance rates appear to be softening at only a moderate pace, according to a study by A.M. Best.
Global reinsurers continue to instill underwriting discipline and have reduced their exposure to lines of business they regard as inadequately priced, the study noted, based on the Jan. 1 renewal reports of the top European secondary carriers.
In addition, SCOR's improved financial strength has enabled it to regain clients it had lost during financially difficult times.
Although overall treaty renewals are showing flat to moderately softening rates, Best reported that the picture can vary by line of business and country. In France, reserve strengthening and claims inflation in motor liability have led to a reduction in capacity. Reinsurers that offered cover were able to increase rates between 20- and 30 percent.
In aviation, prices for direct aviation continue to plunge as operating losses, especially for the larger airlines, remain limited.
In the retrocession market, capacity remains scarce partially as a result of the withdrawal of GE Insurance Solutions from this segment following the merger with Swiss Re, Best noted.
Reinsurers have been seeking alternative sources of capacity, such as sidecars or catastrophe bonds; however, they have not (yet) fully replaced the exited capacity.
According to the Best report, the recent winter storm in Europe, with an insured market loss of $6.6-to-$9.1 billion, is a timely reminder of the volatile nature of non-life reinsurance. Given the state of the reinsurance market, earnings in 2007 are likely to remain favorable, provided that natural catastrophe risks are adequately managed.
A.M. Best said that new capacity in the form of Bermuda start-ups and sidecars will become an increasing source of competition in Europe, given the recent events in Florida. This is expected to free up an additional $2-to-$4 billion in capacity.
The recent expansion of the Florida Hurricane Catastrophe Fund approved by the legislature earlier this year is expected to make the market there much less attractive to reinsurers.
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