Reinsurance prices ‘already rising’. Market ‘underestimated global financial problems’
Market sentiment over pricing is turning a corner as the credit crunch bites, according to James Summers, UK CEO of Cooper Gay. The retrocession market appears to provide the first indications of a tightening of rates, he said.
“We are beginning to hear people saying there is going to be quite an increase in rates, especially on retrocession business,” he said.
“If there was a big loss, it would not be like 2005/2006 when there was so much capital on tap. I also think people have underestimated the impact of the financial problem.”
He said that while retrocession is not necessarily leading other parts of the market into a price reversal, it is the first part of the market to change “because retrocession is where the buck stops”.
The comments follow statements from Munich Re who have suggested that AIG’s difficulties would cause an overall reduction in global capacity and that prices had already started to rise as a result, adding that “it is no longer a soft market”.
AM Best have also spoken of how the combined effects of Hurricane Ike and the AIG downgrade could have an impact on property and casualty market prices.
Meanwhile, Aon has announced that the airline insurance market is hardening (see story link at right of page, 'Airline insurance market hardens').
Summers was giving his insights on reinsurance renewals prior to meetings in Baden Baden in October.
“I think Baden Baden is going to be a little bit more interesting than Monte Carlo. All the talk at Baden Baden will be about capital – people will want to know that companies are solid and safe going forward.”
The problems of AIG, Lehman Brothers and the credit crunch began to emerge shortly afterwards, which meant that such stories as the Aon-Benfield merger quickly became old news.
Summers added: “Where some players were talking about market share, we are going to see more people focus on the way subscription slips look and they will be making sure that there is more than one name on there.
“People ask whether ratings agencies will be changing their assessments even further after everything that has happened in the last two weeks and I think the answer is that they have to. After all, AIG was AA rated during the Monte Carlo Rendezvous and dropped to A- overnight. It shows that you can take anything for granted.
He said that retrocession would probably be the first area to start moving, despite a surplus of capital going into that market.
“While retrocession has never been soft you will see capacity tighten.”
Summer added that Cooper Gay is still supporting AIG. "They have been around long enough and we expect them to come through,” he said.