Despite a dramatic rise in
natural catastrophes in 2011, the cost of catastrophe excess of
loss (XOL) life reinsurance has declined this year, according to a
study by Aon Benfield. For its study, the reinsurance intermediary
assessed data from 284 insurers from 21 countries, or groups of
countries, which buy a combined life catastrophe reinsurance
capacity of €7.5bn ($10.6bn).
In its study, Aon Benfield
found that the average rate on line (ROL) of XOL is now 1.2%. ROL
is the percentage of premium paid, for the monetary unit of cover
bought. The average includes Japan where the devastating earthquake
and tsunami in March 2011 resulted in the ROL paid by Japanese
insurers rising by 23% on a 7% increase in capacity bought.
Excluding Japan, the average ROL across the other 20 countries
examined by Aon Benfield declined by 4% compared with
2010.
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Marc Beckers, head of Aon
Benfield Analytics in Europe, the Middle East and Africa, 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.”
He added that the cost of ceding catastrophe risk to
reinsurers is well below the internal cost of capital of
insurers.
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