AM Best US reinsurance buyers ranking

AM Best US reinsurance buyers ranking

This year’s top 50 US buyers of reinsurance and the top 25 US reinsurers rankings both show continued high retention of insurance risks among primary carriers, but an increase in exposure under new cat models could drive a rise in reinsurance demand, according to AM Best.

- Click here to view the largest 50 buyers of reinsurance by premiums ceded to non-affiliates

- Click here to view the top 25 reinsurance companies by 2010 net premiums written

The rating agency’s data shows that retention continues to go up, with US firms passing less risk to reinsurers. However, the rise has also slowed down, with the percentage change falling year on year: by about 3% last year and down again this year.

“The longer-term trend is that retention has gone up, as primaries retain more business. That is evident from the previous year’s results, although the change is down by about 5%,” says Robert DeRose, vice-president of reinsurance ratings at AM Best.

Looking at the longer-term, DeRose points to the retention rise over several years as the biggest trend, but hints that this could shift altogether, as modelled property catastrophe exposures, as well as claims from cat losses hitting some carriers, potentially begin to increase demand for reinsurance.

“Primaries have been impacted by frequency rather than severity and changes to their cat models. What is anticipated is that reinsurance demand might go up, but that if it does go up, it will mainly be in the higher layers. We don’t see any reduction in retention at the lower levels. Companies will be buying more to protect themselves from their peak losses,” says DeRose.

He thinks the biggest factor that could alter primary carriers’ demand for reinsurance is probably the overhaul of modelled exposures brought about by the release of version 11 of Risk Management Solutions (RMS)’s North Atlantic hurricane model this year. “The modellers – and RMS v11 in particular – saying to these insurers that they have a lot more exposure to their business than they had only a year ago, could influence greater demand, although we still can’t say that with certainty,” says DeRose.

However, the impact of v11 will likely not come in a blanket effect across the market, as different primary carriers use a mixture of RMS, rival models from AIR Worldwide and Eqecat, as well as various blends.

“The change with the model will affect insurers on a company by company basis. Some may not be hit too hard by higher modelled exposures; others may see a much larger impact from the change,” according to Gale Guerra, senior financial analyst at AM Best.

DeRose suggests that those insurers caught this year by clusters of retained losses from the high frequency storm and tornado activity in April and May will be met by high prices for the aggregate cover they might seek for 2012.

“There’s increased demand for aggregate reinsurance cover, following recent catastrophe events in the US, but from what I gather, the pricing offered on that type of cover is also quite restrictive. It’s actually quite hard to find,” he says.

Guerra notes that property business is leading the rate rises that have occurred this year.

“There is a shifting focus towards property books, because there is better pricing on that. Casualty pricing meanwhile is stabilising: rates had been declining year on year, but this year prices have flattened out. However, reinsurers are still very cautious about putting more casualty business on their books,” she says.

The main US reinsurance players remain largely unchanged, notes DeRose, especially among the top five, consisting of National Indemnity, Swiss Re America, Transatlantic, Everest and Munich Re America.

With the biggest US reinsurers remaining quite static from last year, little change is expected in 2012. Bermudian Validus is still seeking to acquire Transatlantic after a protracted merger battle between several suitors, while DeRose looks to fund managers setting up some smaller reinsurers.

“The universe of players remains small,” he says. “They are large organisations and stable players in the market. You see new companies coming in occasionally, more recently a few hedge funds, for example, have announced that they are getting into the reinsurance space.

“Those organisations because of their size are not going to command a lot of capacity, so they are unlikely to pierce this top 25 universe of firms for quite some time, if at all,” adds DeRose.

Looking at the gaps between gross and net premium, DeRose notes the small number of reinsurers among the top 25 firms that are actually US-based groups – with a large number of the firms on the firms being subsidiaries of Bermudian or European based groups.

“These are US subsidiaries of global affiliates. The gross is much larger than the net because they are ceding a lot to the parent through inter-company reinsurance. That’s true of the majority,” he says.

On the prickly subject of reinsurer taxation – flagged once again by the reintroduction of the Neal Bill to the US Congress – DeRose acknowledges that “most reinsurance business goes offshore these days”.

“There are obviously capital-efficient reasons for that, as well as there being opponents of that, saying it should be kept onshore and taxed,” he says.

Summing up the short-term outlook for reinsurance demand, he says the data cannot foresee whether next year will bring a wholesale shift to greater reinsurance consumption, or just a levelling out recent years’ decline.

By Mark Sands –


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