Overview

The collapse of credit and equity markets cost reinsurers large capital losses in 2008 and early 2009. There were some losses in mortgage and bond insurance operations and professional liability lines, but underwriting results overall remain profitable. Credit market troubles have reduced the availability of alternative sources of reinsurance capital, including Cat bonds and collateralized capacity.

Worldwide reinsurance market capital shrank for the first time since 2001. Leverage ratios increased for most reinsurers. UK reinsurers also had their capacity (in dollars) fall at year-end due to exchange rate swings and many tried to raise new capital early in 2009. Reinsurers’ earnings fell sharply due to investment write-downs, earlier price reductions and an increase in large losses. First half underwriting profits improved and the pound strengthened in the second quarter, partly easing these pressures.

After falling for two years, reinsurance prices for U.S. ceding companies began to rise at year-end. In 2009, catastrophe prices increased further as some reinsurers reduced capacity and some buyers sought to buy more. Per program capacity was at record levels in 2008, and remains at or above that peak.

After an active catastrophe year in 2008, the worldwide markets had benign loss experience in the first half. But 2008’s Hurricane Ike has been surprisingly slow to develop.

Despite recent rate increases, Holborn expects reinsurance market volume to grow moderately, if at all, in 2009. We expect the market’s capital to stabilize and reinsurers’ leverage ratios to fall. Partner Re has purchased Paris Re, IPC Re and Chaucer at Lloyd’s will likely be acquired during 2009, and other potential acquisitions are rumored. Holborn expects an increased level of mergers among both reinsurers and primary companies. Mergers generally reduce capital and capacity.

Section A. Current U.S. Market Conditions

• Property Catastrophe
• Casualty and Working Business

Section B. Investment Losses and Write-Downs
Section C. 2009 Market Losses
Section D. Worldwide Reinsurance Industry Results
Section E. For More Information


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