With the July 1 reinsurance renewal season just completed, the verdict is that reinsurers weren't as tough on prices as many expected.
That's good news for Australia's general insurers, which were seeking to renew policies worth hundreds of millions of dollars in terms of catastrophe and other protections.
Natural disasters, such as the Christchurch earthquake, threatened to increase the price of reinsurance.Credit: Mark Baker/Associated Press
With so many calamity hitting the insurance industry in 2010-11 - recall the earthquakes in New Zealand and Japan, and floods in Queensland - the fear was that reinsurance rates might easily soar 50 per cent for some categories.
Instead, the regional small players that don't have big loss exposures are believed to have paid between 15 per cent and 20 per cent for their renewals. The big players, though, got stung to the tune of about 25 per cent, and some a little higher.
An increase in reinsurance rates is generally passed on to the customer of general insurers. For Australians, the more favourable outcome means the cost of general insurance won't rise as much as originally expected.
While it is hard to tell from the overall increase as there are lots of markets involved and they all get different prices, the talk is that retention rates remained pretty much the same as the last policy period.
Catastrophes diminish
The reason? The past 12 months have been relatively free of catastrophes and, therefore, losses.
A report released by reinsurance broker Guy Carpenter said catastrophe-related insured losses totalled $US11 billion in the first six months of 2012, compared with $US76 billion in the first six months of 2011. The report said prices were also curtailed by a sudden injection of capital into the market.
The Guy Carpenter Global Reinsurance Composite index found that reinsurers' capital position increased to $US184.5 billion, a 4 per cent gain over the previous year.
“The inflow of new reinsurance capital has also been a significant feature, with between $6 billion and $8 billion of alternative capital entering the market since the catastrophes of 2011,” the report states.
Online insurance trade magazine Insurance Insider estimated that average US property catastrophe reinsurance rates rose 6.5 per cent at the July 1 renewals, and said overall rate increases were "subdued."
It also said low catastrophe losses in the past year also moderated pricing pressure at the July 1 renewals.
Buffett role
It explains why Suncorp managed to place its entire New Zealand catastrophe coverage with Warren Buffett's Berkshire Hathaway.
Just about everyone in the industry had expected Suncorp to face an extra tough time in its reinsurance renewal negotiations after it lifted its loss estimate for the second New Zealand earthquake by $400 million only 12 days after the cover had been renewed.
It was a revelation that didn't go down well with reinsurers.
But it didn't perturb Berkshire Hathaway, which took most of Suncorp's Vero specific program on a three-year-deal at last year's terms, as well as taking a share of their Queensland book also on a three-year deal.
All in all, Suncorp's boss Patrick Snowball should be quite happy with the renewal as it took him until September last year before he was fully covered.
QBE does its renewals on January 1 but it is in the middle of a three-year deal for the bulk of its program which doesn't expire until December 2013.
IAG renews on January 1, with the expectation that they will also get similar treatment.
Not surprisingly, the share prices in listed insurance stocks are starting to bounce back. Suncorp were recently trading at $8.15, up from $7.45 month ago,
QBE is trading at $13.34 compared with $12.34 last month, and IAG is trading at $3.55, compared with $3.24 a month ago.