YEN STRENGTHENING TIGHTENED APRIL RENEWAL CAPACITY

The April 1 catastrophe reinsurance renewals followed the global expectations published by broking group Aon Benfield in January, the company stated this morning. However, Japan’s domination of the mainly Asian April 1 renewal market meant that a stronger yen “resulted in tightened capacity and hardening in the reinsurance market”. Aon Benfield said that it anticipated continued hardening for property catastrophe renewals in June and July, where Florida risk is dominant. The broker observed that reinsurer capital fell by an estimated 14% in 2008, down from a previously estimated range of minus 15% to minus 20%. However, “the decline in capital has been significantly worse for insurers than reinsurers”, where global players saw declines in capital of 25% to 30%. Hurricanes Gustav and Ike were minor players in this decline, with losses on investments being 13 times greater. Aon Benfield observed that the declines in insurer capital had increased interest in transactions that eased capital requirements, such as quota share, surplus share, property catastrophe occurrence and aggregate, plus adverse loss reserve development deals. Aon Benfield said that in Europe and Japan, supply either matches or exceeds demand, but there remained a surplus of demand over supply on the US east coast. In Florida, Aon Benfield predicted that the possible phasing out of a $12bn layer at the Florida Hurricane Catastrophe Fund “may soften a potential material increase in demand for the 2010 hurricane season and beyond”.