Potential catalysts for turnaround may start to emerge, says Guy Carpenter

For the second consecutive year, global reinsurance property catastrophe rates on line for most lines of business declined at the January 1, 2011 renewals, according to a report published by Guy Carpenter.

The Guy Carpenter Global Property Catastrophe Rate on Line Index dropped 7.5% in 2010, as moderate loss activity, high levels of industry surplus and other factors contributed to the decrease. Structures did not change significantly, with cedents buying amounts of cover comparable to last year.

The report, titled Points of Inflection: Positioning for Change in a Challenging Market, features Guy Carpenter’s 2011 reinsurance industry outlook and identifies several emerging drivers of change that have the potential to turn around current soft market conditions in the year ahead.

Key reinsurance industry issues and trends examined in the report include:

Renewal rates

Guy Carpenter’s exhaustive sector-by-sector and regional review of renewal rates indicates, with few exceptions, further softening in the market.

Excess capital

Guy Carpenter estimates dedicated reinsurance sector capital to be $19bn (11%) in excess of historical levels given risks currently assumed, with a defensible range of between $14 bn (8%) and $26bn (15%).

Regulation

The Solvency II regulatory capital regime has profound impact on the industry far beyond the European jurisdiction. Re/insurers worldwide should be prepared to identify, understand and manage these risks associated with Solvency II changes.

Bill Kennedy, chief executive of of global analytics and advisory, Guy Carpenter & Company, said: "We expect 2011 to be a challenging year in terms of global macroeconomic issues and insurance underwriting. It is also likely to be a year of opportunity. Insurers armed with the best information, insights and innovative solutions will be best positioned to take advantage of the changing environment."

David Flandro, head of global business intelligence, Guy Carpenter & Company, added: "While current market conditions show no immediate signs of reversing, we see an increasing number of latent factors which - alone or in combination - could at some point precipitate a meaningful change in the market's direction. Depending on loss experience, these factors could begin to coalesce around renewals later in 2011."