Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation (NYSE:AON), today releases its 2011 Death & Disability Cat Benchmarking Study which provides insight into insurers’ reinsurance purchasing patterns in Life business, analyzing factors such as retentions, rates, and premium volumes.
The study is based on the results of an extensive survey of 284 Life and Non-Life insurers from 21 countries or groups of countries, which buy a combined catastrophe reinsurance capacity of EUR7.5 billion. Accounting for the respective market shares, this translates into information on EUR13.5 billion of death and disability catastrophe reinsurance.
Key findings of the Study include:
• France and Japan are the largest purchasers of excess of loss (XOL) per event treaties – as per last year – with over EUR2 billion of capacity each. This contrasts sharply with the smallest death and disability catastrophe markets, like China, Central and Eastern Europe (CEE), and Finland, where insurers buy less than EUR250 million of Life catastrophe cover.
• The average Rate on Line (ROL) – the percentage of premium paid for the unit of cover – is 1.2% for the countries analyzed in 2011.
• Despite purchasing small amounts of cover, the CEE pays the highest ROL of 3.25% due to its position as a developing market with little competition. At the other end of the scale, Belgium/Luxembourg insurers pay 0.6% ROL which is influenced by the low risk of catastrophes in this region.
• Using comparable samples from nine countries – excluding Japan – there was a general decrease in ROL of -4% between 2010 and 2011.
• Following the Japan earthquake and tsunami in March 2011, there was a 23% increase in ROL from 2010 to 2011, whereas the purchased capacity increased by 7% in the country.
• 90% of companies opt for XOL per event out of all types of catastrophe cover.
• In 80% of cases, the layers allow one reinstatement which costs 100% of the original reinsurance premium.
Marc Beckers, head of Aon Benfield Analytics in EMEA, said: “The study shows that the average cost of a Life catastrophe XOL is around 1% ROL. Although the relative cost of this cover depends on a variety of factors like attachment point and the relative risk associated with the portfolio, catastrophe XOL remains a very cost effective method to mitigate extreme mortality events, other than pandemic. In addition, the cost of ceding the catastrophe risk to reinsurers is well below the internal cost of capital of insurers.”
The Death & Disability Cat Benchmarking Study enables actuaries to verify pricing calculations for alternative reinsurance pricing structures, and gives intermediaries the data to place and negotiate the most effective and fair reinsurance terms and conditions. This is part of Aon Benfield’s global breath of capabilities for Life insurers, involving the translation of risk appetite, analytics and access to markets into effective reinsurance strategies.
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