Cedants, brokers and reinsurers all agree that price had the biggest influence over reinsurance buying decisions in the most recent renewal period, according to the Reactions Jan. 1, 2006, renewals survey. Some 52% of cedants that responded to the survey think price was the biggest influence, compared with 62% of brokers and 58% of reinsurers.
This is a stark contrast to cedants' views in last year's survey, where 50% thought relationships had the biggest influence on buying decisions, and only 17% believed price was most important. By comparison, brokers and reinsurers both thought that price was most important in 2005.
A big reason for cedants' change of heart could be the heavy U.S. hurricane season last year. Hurricanes Katrina, Rita and Wilma cost reinsurers dearly, and many cedants were faced with steep rate increases. Therefore they had to watch their budgets carefully.
The survey shows that cedants and their reinsurers disagreed in other areas at the Jan. 1, 2006, renewals. Not surprisingly, the potential for increasing property rates was a particularly big talking point. Reinsurers seemed determined to push for the biggest price increases they could. One respondent said the biggest source of discussion was "trying to get non-U.S. insurers to agree to increased rates on their respective property programs."
Non-U.S. cedants, it appears, were equally keen that they did not pay more for their reinsurance because of losses in the U.S. "Price was the biggest issue, especially in non-U.S. territories, because clients did not want to pay for U.S. losses," says one respondent.
Cedants also wanted to ensure that they were treated as individuals and that prices were based on their own loss experiences. Some mounted a staunch defense against across-the-board rate increases. "The biggest talking point we had was that, because of our strict underwriting on both property and casualty, we have favorable reinsurance rates and have produced exceptional results for our reinsurers," said one cedant. "So, we would not tolerate undue rate increases based on the experience of our competitors with less stringent underwriting rules."
It seems many cedants got their way. The respondent who said the biggest source of discussion was encouraging non-U.S. cedants to pay more conceded: "There were increases but not what I expected."
Cedants may have won the battle because reinsurers realized that clients may be scared off if prices increased too much, especially where there had not been a loss. It appears reinsurers lost enough business as it was. Even though rate increases were not as high as many expected, the survey shows cedants were unwilling to cede more business to reinsurers, and in some cases they retained more business than previous years.
Sixty-two percent of respondents thought cedants retained more in property non-proportional business, and 53% thought they had retained more in casualty non-proportional business. In proportional lines, the majority of respondents thought cedants had retained the same amount of business as previous years. Even so, a large proportion of respondents – 45% for property proportional and 43% for casualty proportional – believed cedants had retained more business.
A big talking point at pre-renewals conferences was catastrophe risk models. Many criticised models and the industry's apparent dependence on them following the US hurricane season last year. Despite this, the use of models does not appear to have slumped. Only 5% of respondents thought models had less influence on the renewal process for property proportional business, compared with 12% for property non-proportional, 5% for casualty proportional and 2% for property non-proportional.
