Reinsurance Prices Drop Due to Lack of Storms in ’07
Guy Carpenter, Marsh & McLennan Cos Inc.'s reinsurance unit, stated on Wednesday that the cost of reinsurance has fallen after another relatively disaster-free year has likely led to large profits and increased pressure to cut prices.
Prices have fallen across the board in the important Jan. 1 renewals, when many major insurers renegotiate the cost and terms of their annual risk cover they buy from reinsurers.
Rates for property catastrophe reinsurance , which covers against perils such as hurricanes and earthquakes, are down 9% according to Guy Carpenter. This masked bigger price drops in the United States than in Europe, it said, with prices down on average by 10% for U.S. national programs and 12% for U.S. regional programs."
Reinsurance is a major influence in the cost of insurance at the local level," said Robert Hartwig, president of the New York-based Insurance Information Institute. "As we move into 2008, that bodes well for consumers," he said.
Average price declines were 7.5% in the United Kingdom and 7% in continental Europe, Guy Carpenter said, despite Hurricane Kyrill which buffeted northern Europe in January and the British summer floods. Although these cost insurers billions of dollars, they left reinsurers relatively unscathed.
The price cuts seem to show reinsurers have not heeded calls from leading players, such as Swiss Reinsurance Co., Munich Reinsurance Co. and Lloyd's of London, to remain disciplined, but have cracked under pressure from clients to lower prices.
The lack of costly disasters in the past two years, which means reinsurers are set to post big profits for a second year in a row, has intensified pressure on them to cut prices.
Published on January 3, 2008
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