Risk Management Solutions (RMS)

New Models, Cat Losses Could Drive Double-Digit 2012 Reinsurance Rate Increases, Experts Say

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October 25  |  News, Risk Management Solutions (RMS)  |   agetz

Almost every discussion of 2012 reinsurance rates for U.S. property risks touches on major changes in catastrophe models—both the recently released Risk Management Solutions (RMS) version 11.0 U.S. Hurricane Model; and, to a lesser extent, AIR Worldwide’s revisions released last year but only now making their way through the system.

James Vickers, chairman of Willis Re International & Specialty, is one of a number of experts who believes the RMS changes already have had some upward impact on pricing on certain mid-year U.S. property-catastrophe renewals—and he expects this trend to continue in the Jan. 1, 2012 renewals. 

However, he anticipates RMS changes for European windstorm will have less impact because most buyers there are still assessing how the model change will affect their holdings “and because models other than RMS are widely used” across the Atlantic, Vickers adds.

Pina Albo, president of the reinsurance division for Munich Reinsurance America, in Princeton, N.J., reports June and July rate increases in the 10-plus percent range for large U.S. property-catastrophe renewals. She ascribes that double-digit bump both to the worldwide catastrophes in 2011 and initial client implementations of the new RMS version 11.0.

Extrapolating from these mid-year jumps, Albo predicts that for large accounts, even without additional significant catastrophe losses for the remainder of the year, the combination of cat losses to date and the new RMS version working itself through the systems will lead to Jan. 1 renewals with the same 10-percent increase seen at mid-year—or the percentage jump may even be slightly higher.

Jim Bradshaw, CEO of Willis Re Inc., also expects that the upward-bound pricing trends seen in mid-year renewals will continue in 2012. But he cautions that variations “driven by reinsurers’ loss experience, the impact of the new RMS version 11.0 model results on their PMLs [probable maximum losses] and changes in their exposure base” all make sweeping market predictions about pricing directions difficult.

Unlike Munich Re and Willis Re, Aon Benfield is not seeing widespread U.S. adoption of the new RMS version, and Bryon Ehrhart, chairman of Aon Benfield Analytics and Securities, anticipates it will have little effect on renewals this season.

October 24, 2011

By Susan R.A. Honeyman

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