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Reinsurers May Get Higher Prices in Monte Carlo Talks

Executives from reinsurers including Swiss Re Ltd. and their customers may negotiate modestly higher prices for a second straight year in 2013 when they start contract-renewal talks with clients in Monte Carlo this week.

“I see stable prices to slight increases,” Thierry Leger, a member of the group management board at Swiss Re, said at a roundtable of reinsurance buyers and sellers hosted by Bloomberg News in Zurich. “On the other hand, we have the crisis and it is very difficult for clients to digest price increases.”

Rates for property and casualty reinsurance climbed an average of 7 percent this year after record natural-disaster losses in 2011, according to the Guy Carpenter U.S. Property Catastrophe Rate on Line Index. The index has declined in four of the last six years.

The record $105 billion of natural-disaster claims in 2011 gave reinsurers the leverage to push through price increases for primary insurers this year. Negotiating higher rates for the next round of contract renewals in January may prove more difficult after insured losses slumped 86 percent to $11 billion in the first half from the year-earlier period, when claims were boosted by the earthquake and tsunami that hit Japan.

Zurich Insurance Group AG, which buys reinsurance contracts to spread its risks, expects prices to remain little changed next year if there is no “tough U.S. or European catastrophe season,” said Paul Horgan, head of group reinsurance at the biggest Swiss insurer. If reinsurers can present “a legitimate reason” for higher prices, the company would accept these if there is a market consensus.

Capital Buffers

“Everybody is still in good shape,” said Horgan. “So far the losses for most of our trading partners have been earnings losses, not capital losses,” as capital buffers have reached record levels, he said.

Reinsurers have accumulated a record $480 billion of capital, according to Aon Benfield, the world’s biggest reinsurance broker, which mediates deals for primary insurers. These buffers are used as a cushion against natural catastrophe losses.

At the 31 biggest global reinsurers, net premiums written rose by 5.3 percent to $76.3 billion in the first half, the broker said.

July Renewals

“There is a trend, albeit gradual,” to raise prices, said Amer Ahmed, chief executive officer of Allianz Re, the reinsurance arm of Munich-based Allianz SE, Europe’s biggest insurer. “There is not enough premium in the system for the exposures that we carry.”

Munich Re, the world’s biggest reinsurer, raised rates in the July renewal round by about 2 percent and expects stable prices in 2013. At second-ranked Swiss Re July renewals, when most reinsurers agree on contracts with customers in parts of the U.S. market, Australia and New Zealand, rate increases were 3 percent.

Chief Financial Officer George Quinn said in May that the Zurich-based company had seen the largest price increase “in a renewal for long as I can remember.”

“The trend is pretty clear,” said Stephan Knipper, president of Axis Re Europe, the European reinsurance unit of Bermuda-based Axis Capital Holdings Ltd. “It might be a gradual one, though. This year the result is okay. So far we’ve been lucky. We’ve had no cut event.”

Following the Monte Carlo talks, reinsurers and insurers will reconvene negotiations in the German town of Baden-Baden in October. Allianz SE, Axa SA and other insurers buy reinsurance to help them shoulder claims from costly events such as natural disasters.

Pricing Outlook

“Stable prices are more likely,” said Stefan Schuermann, a Zurich-based analyst with Vontobel Holding AG, adding that smaller reserve releases and the impact of low interest rates on investment returns may push rates higher. “Even if there is plenty of capacity, prices might rise somewhat in the end.”

Reinsurers such as Munich Re, Swiss Re and Hannover Re typically renew about two-thirds of their annual property and casualty contracts in the January round of renewals and the remainder in April and July.

Standard & Poor’s Ratings Services said it expected reinsurers’ excess capital to continue to drive modest rate increases, and that macroeconomic uncertainty, continued low investment returns, and diminished benefits from reserve releases would continue to put pressure on the industry’s earnings for the next two to three years.


The capital buffers show the stability of reinsurers, said Jacopo d’Antonio, president and chief underwriting officer at Aspen Re Europe, who expects “patchy but gradual” price increases.

Capital buffers have “continued to strengthen through the second quarter of 2012, moderating pricing pressures,” according to a report by Guy Carpenter & Co., the reinsurance brokerage of Marsh & McLennan Cos. “One important factor driving these trends has been benign catastrophe activity,” the broker said.

Among this year’s most costly disasters is Hurricane Isaac, which made landfall in Louisiana on Aug. 28. It may cost insurers as much as $2 billion in the U.S., risk-modeling firm AIR Worldwide said last week. Offshore oil rigs and gas platforms in the Gulf of Mexico probably didn’t suffer significant damage from Isaac, AIR said.

During the past decade, the industry withstood natural disasters such as Hurricane Katrina, which flooded New Orleans and caused $62 billion of insured losses in 2005, and last year’s earthquake and tsunami in Japan, which cost the industry as much as $40 billion, according to Munich Re.

Another argument for higher prices would be that reinsurance is becoming more volatile as primary insurers react to declining growth by concentrating the reinsurance they buy on riskier policies while keeping the less exposed treaties on their own books, said Hans-Joachim Guenther, chief underwriting officer and head of reinsurance for Europe and Asia at Bermuda-based Endurance Specialty Holdings, Ltd. “This puts more pressure on us to charge the right price.”

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