From Monte Carlo: Expect soft rates

Business Insurance summarizes Guy Carpenter’s forecast:

MONTE CARLO, Monaco— Rates for most reinsurance lines likely will soften further or remain flat at the upcoming renewals, in the absence of any major loss, according to Guy Carpenter & Co. L.L.C.

Apparently the Chilean earthquake, the Deepwater disaster and European windstorm Xynthia weren’t expensive enough to make capital scarce, so rates will continue to stay flat or decline.

A couple of notes for initiates: The Reinsurance Rendez-vous, the industry’s annual worldwide convention in Monte Carlo, began this week. Between sumptuous meals, CEOs talk about where the reinsurance market is and where it is going. Presentations like Guy Carpenter’s help drive understanding of the market which in turn drive reinsurance rates.

In general, the lower reinsurance rates are, the lower rates are for primary business. (More true for commercial lines like GL than for U.S. personal lines, since the big personal lines companies rely less on reinsurance to supply capital.)

At 30,000 feet, this sounds a lot like rate-fixing but it’s not from what I can tell. (I’ve never been to Monte Carlo.) Here, for example, Carpenter is merely confirming publicly available information – that reinsurers have lots of capital. Reinsurers rent that capital out to insurers. The more capital insurers control, the more premium they can write. Too much capital (like now) and rates fall.

More briefings here.

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