Why reinsurance rates matter
The relatively mild hurricane seasons of the past two years and the lack of other catastrophic weather events has been largely responsible for the significant profits generated by reinsurers. Indications are the happy days of low losses and high profits are ending, as reinsurance premium rates are on the decline.
That's good news for primary carriers, and also for policyholders - companies, governments, taxpayers, and individuals - for two reasons.
Declining premium rates mean primary insurers spend less on reinsurance. In turn, primary carriers' profits increase, and/or they cut their policyholders' premiums.
In today's market, bet on premium cuts. Insurers are looking to hold onto, if not capture more market share. And in a commoditized market, price moves share.
The other positive impact of the cut in reinsurance costs is its underlying cause - fewer high-dollar (or euro or yen or yuan) claims.
Because claims hit primary insurers first, the (relatively) low number of catastrophic claims means primary insurers are also enjoying high profits. You guessed it - their investors want more of that good stuff, so they are also cutting prices.
While these findings are specific to the property market, other lines, including workers comp, have also been experiencing relatively low loss ratios.
What does this mean for you?
P&C rates, including Workers Comp, are on the decline.
But a few big catastrophes could change that in a hurry.