Reinsurance renewals stay flat - Willis Re

Jul 1 (Reuters) - General reinsurance pricing is still showing no signs of increasing despite unprecedented natural disaster losses over the past 16 months costing reinsurers $48 billion and U.S. insurers $86 billion, Willis Re said in a report.

But annual pricing in loss-hit regions - such as Japan, New Zealand and Australia - has increased by 30 percent to 150 percent, said James Vickers, chairman at Willis Re International and Specialty said in an email to Reuters.

The summer reinsurance renewals occur in June and July when many insurers renegotiate the cost and terms of the annual risk cover they buy from reinsurers.

July 1 renewals are a much smaller renewal opportunity and represent about one sixth of the total amount of premium versus the June 1 renewals in North America.

"Overall the market is not showing any signs of generalised hardening with renewals outside of loss hit property covers seeing flat to modest reductions varying by class," said Vickers.

Willis Re said global reinsurers were still well capitalized, though the average natural catastrophe loss for reinsurers in the first quarter of 2011 is in the region of "10 percent of their shareholders' funds at the end of December 2010".

As a result, share buy backs have been scaled back, and "$1.2 billion of new capital has entered the industry, either through sidecars or fresh equity, as some reinsurers start to position themselves for a possible market turn", Willis Re said.

Sidecars are specially created subsidiaries funded by outside investors, through which reinsurers have raised $2.3 billion in 2010, according to independent figures.

In recent years reinsurers have not had pricing power, as few major disasters led to excess capacity and heavy competition. Going into 2011, there was little expectation of firmer pricing before next year at the earliest.

Software revisions from risk assessor RMS have seen losses on Florida hurricanes come in about 6.5 percent higher than historically forecast - presenting a considerable challenge for buyers, reinsurers and rating agencies, said Willis Re.

"The impact of the RMS model change in the US has been client specific depending on each buyer's portfolio leading to rate reductions of -5 percent in a few cases and rate increases of up to +15 percent in others," said Vickers.

Rival broker Guy Carpenter said in a report the RMS Version-11 hurricane release has "triggered a slow trend of increased pricing".

Standard & Poor's put 16 catastrophe bonds - through which insurers transfer risks associated with natural disasters to capital markets investors - on negative watch because they use the modeling technology.

"Updates to the major European catastrophe models are being released in July, adding to a considerable workload for all parties as they seek to understand the impact of model change on their capital management and performance strategies," Willis Re said.

Catastrophe risk modeling firm AIR Worldwide are due to release updates to the way it models European wind risk in the summer, following changes to its assumptions in October 2010.

Bermudian based reinsurer Flagstone Re < FSR.N> said it has seen a 5 - 15 percent increase in July 1st reinsurance renewals, spurred by the catastrophe model revisions.

"These changes have seen cedents increase retentions to offset the higher limit demand and costs, and the overall spend has also increased," Gary Prestia, chief underwriting officer, North America of Flagstone Re said in an emailed statement to Reuters.

(To join the Thomson Reuters Insurance Linked Securities Community for more news and analysis, click here) (Reporting by Sarah Mortimer; Editing by Toby Chopra)