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Guy Carpenter & Company, a unit of Marsh & McLennan, the world's largest insurance broker, said in a report that property catastrophe rates during the January 2009 renewals season were up by an average 8 percent on the year.
Prices had fallen in the two previous years on the Jan. 1 renewal date, when many major insurers renegotiate the cost and terms of the annual risk cover they buy from reinsurers.
2008 was the second most expensive year for the industry, with insured losses of $50 billion, but Guy Carpenter said the unprecedented volatility in financial markets had "caused more economic damage than the most severe property catastrophes".
The 2009 price increase was less than the increases recorded in the wake of Hurricane Katrina in 2005 and the attacks of Sept. 11, 2001, reflecting reinsurers' broadly strong capital position, Guy Carpenter said.
"Price increases at the Jan. 1 renewals have been tempered somewhat by large capital positions, which have enabled carriers to absorb the year's losses, but the marketplace remains highly volatile," Guy Carpenter's Global Head of Business Intelligence, Chris Klein, said in a statement.
Last week, rival reinsurance broker Willis Re, part of Willis Group, said demand for reinsurance was rising as primary insurers sought to further preserve capital in the face of the credit crisis.
Guy Carpenter said property catastrophe reinsurance rates for the United States rose on average by 11 percent, but varied widely, with Gulf of Mexico programmes facing losses from 2008 storms seeing prices rise by up to 40 percent.
Worldwide casualty reinsurance pricing rose 5 percent on average, but capacity was constrained and a number of programmes could not be placed at any reasonable rate, the broker said.
DIFFICULT
The most difficult renewals were for lines of business directly affected by the credit crisis, such as errors and omissions and directors and officers insurance.
Demand for such protection increased due to an upsurge in shareholder class action lawsuits related to the subprime mortgage crisis -- insured losses from which Guy Carpenter expects to reach $8 billion -- and subsequent financial turmoil.
"While insurers have experienced an increased need for reinsurance protection, the reinsurance market has not added capacity, due to pressures on their capital from the collapse of global financial markets," the report said.
Prices for retrocession -- the passing on of reinsurance risks to other reinsurers -- were sharply higher, reflecting reduced capacity as a result of insurers' investment losses and the withdrawal of some major players.
Despite a difficult year, the industry's strong capital position mitigated the impact of the credit crisis on reinsurance pricing.
Klein said severe storms in 2009, as predicted by climatologists, or further financial surprises, could push reinsurance rates higher again, while a resolution of the credit crisis could restore asset values and capital positions.
(Additional reporting by Myles Neligan; Editing by Sharon Lindores) Keywords: REINSURANCE/ (catherine.evans@reuters.com; +44 20 7542 9091; RM: catherine.evans.reuters.com @reuters.net)
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