SEOUL, South Korea (BestWire) - South Korea's reinsurance market is experiencing a softening cycle with an overall reduction in reinsurance rates in April's renewal round.
With the absence of large natural catastrophes in South Korea since 2004, the market has had a low level of insurance losses. With primary insurers continuing to increase their retention levels, "there is heightened competition over rates" among reinsurers, said C.S. Park, managing director of Korean Reinsurance Co. .
This year's Haiti and Chile earthquakes, Windstorm Xynthia in Europe, hailstorms in Perth and Sydney, Australia, and various other earthquakes are expected to bring record-high natural catastrophe losses worldwide, but Park said it is too early to tell the actual impact because loss assessments for these events have just started.
In South Korea, Park said the possibility of rate increases caused by these catastrophic events has been "somewhat" filtered down, given the country's low loss ratio due to the absence of natural perils. Therefore, these global events' impact on the Korean market would be "quite limited," he told BestWeek Asia/Pacific.
South Korea's reinsurance market is influenced by global trends, said Park. In the 2010 January renewals, there was a single-digit fall in reinsurance rates across most lines and regions. South Korea followed this global trend, with a slight drop in reinsurance rates for the 2010 April renewal, noted Park.
In the property catastrophe line, reinsurance price changes ranged from a decrease of 7.5% to an increase of 2.5%, according to global reinsurance broker Guy Carpenter & Co. This was reflected by various market changes including "increased aggregates, deductibles and in some cases, limits," said the broker in a report.
In the previous year, South Korea's property market experienced several notable fire losses, which were shared through co-insurance with three to four companies, according to Willis Re, an international reinsurance broker.
The 2010 April renewals took into account the fire losses in 2009. As a result, loss-affected treaties sustained increases of 10% to 15%, according to Guy Carpenter. For loss-free treaties, the rates went down by 5% to 10% in South Korea.
Willis Re said another benign catastrophe year in South Korea resulted in considerable pressure from cedants to reduce reinsurance prices. Some companies increased retention levels to further reduce costs. Overall, there were no "dramatic capacity issues," although certain reinsurers felt price movements were too great and stepped away from long-term relationships.
For the casualty sector in South Korea, Willis Re said there was growth in exposures, yet significance softening reinsurance pricing. Without any notable casualty losses, reinsurance prices softened at a faster rate than property lines.
Reinsurance prices in the liability market fell 10% to 20% in the April renewals, according to Guy Carpenter. Loss experiences had been light, making the business more attractive to underwriters. More interest was shown by indigenous Asian reinsurers and non-native companies with a presence in the country or region, said Guy Carpenter.
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Iris Lai is the news bureau manager of Hong Kong at A.M. Best reporting financial insurance news for Asia Pacific. She has been writing reports for topics on insurance, reinsurance and takaful sectors and market and regulatory trends across the region. Lai is now writing for BestWeek Asia Pacific, BestWires and Best's Review, under A.M. Best. She can be reached at Iris.Lai@ambest.com.