Commercial Property and Casualty
Reinsurance Market Summary
October, 2010

• The first six months of 2010 saw substantial reinsurance losses from global catastrophes, including the earthquake in Chile, storms in the US, Europe and Australia and the Deepwater Horizon disaster in the Gulf. The Chilean EQ loss alone is now forecast to be $6BN to $12BN, which is substantially higher than the initial estimate of around $2BN.


• Although insured losses reached $23BN in the first half of the year, global catastrophe reinsurance rates have declined by 6% on average through the 2010 season.


• Factoring in modeling adjustments in the US, rates declined by 12% on average. As previously reported, the low catastrophe losses and improved investment returns of 2009 bolstered reinsurers balance sheets and has continued to exert downward pressure on prices.


• On a regional basis, rate reductions were the norm although the downward trend was less marked in Asia and Europe, down 5% and 2.5% respectively. Factoring in modeling adjustments in the US, rates declined by 12% on average and are now at levels last seen in 2008.


• It is estimated that the reinsurance industry remains overcapitalized by as much as $15BN and that such excess surplus/capital will continue to drive down prices assuming there is no extraordinary or market-changing event.


• Market conditions for 2011 are difficult to predict but will be influenced by the extent to which reinsurer capital is eroded by loss activity throughout the rest of the year as well as by the amount of new capital that enters the marketplace . Any large loss (ie $50BN+) or multiple losses in the $20BN to $30BN range could significantly affect the reinsurance market and lead to an immediate correction in pricing.
  
  
  (Source: Guy Carpenter World Catastrophe Reinsurance Market Report September, 2010)