Retrocessional rates still high after 2004-05 hurricanes

Reinsurers are still feeling the pinch of high rates and tight capacity after disastrous losses between 2004 and 2005. In 2005 and 2006, pricing in the retro market did become extreme, David Priebe, head of specialty operations for reinsurance broker Guy Carpenter & Co, said in a release. We saw a lot of reinsurers move capacity away from retro and toward primary insurers, where they could get an improved understanding of the underlying risk exposure.Reinsures felt that they were not getting a good grasp on the risk profiles of other reinsurers, which became a significant factor in rising prices, Priebe said. The lack of transparency that went with writing retrocessional coverage has become a much more expensive factor since 2005, A.M. Best notes.Some reinsurers, in an effort to save costs associated with retro cover, cut down on underwriting to minimize risk.Others reinsurers tapped into capital provided by the private markets, usually through unconventional arrangements known as sidecars. Sidecars are, in effect, temporary reinsurers supported by a fixed-term supply of cash by investors, who receive interest on their investment in the sidecar so long as high-risk catastrophes dont occur. Reinsurers must find a way to mesh risk transparency with affordability, thus permitting them to cover their risk at an affordable price, Priebe said. There is always a niche for every available solution, Priebe said regarding retro coverage. Fundamentally, I think we do have a real shift in terms of how companies see the cost of capital and how they manage it.