A new study of the reinsurance industry's Jan. 1 renewal periodfinds U.S. insurers paying significant increases as reinsurers seekto separate U.S. carriers' risks from exposures in Europe.

Guy Carpenter & Company Inc., a subsidiary of the Marsh& McLennan Companies, has published "Property SpecialtyUpdate--1 January 2006 Renewal Season Overview," an in-depth reporton the Jan. 1 property renewal season.

The study expands on the property findings of Guy Carpenter'srecently published "U.S. Reinsurance Renewals at Jan. 1," providinga detailed assessment of reinsurance renewals in Europe, AsiaPacific and the U.S.

Also covered in the report are property catastrophe, propertyrisk excess of loss, proportional treaty, retrocession, ratingagencies and modeling, catastrophe bonds, and new marketcapital.

Among the study's highlights:

o Property catastrophe: Preliminary estimates show prices risingfor the first time in two years, to mid-1990s levels, with massiveincreases on some U.S. renewals. A reassessment of rating agencycapital requirements, readjustment of catastrophe models and therising cost of capital influenced pricing decisions, although therewas no shortage of capacity.

o Risk Excess of Loss: Pricing changes in the per risk market,where reinsurers assume claims payment above what the primaryinsurer assumes, were less substantial. However, a number ofreinsurers did seek to limit the amount of catastrophe limitprovided on per risk treaties, with others excluding criticalcatastrophe in the renewal of worldwide risk excess of losstreaties.

o Pro Rata: For most reinsurers, the spreading of a percentageof a single risk among them remained a less attractive line ofbusiness than excess of loss. In terms of both the number ofparticipants and capacity, this segment of the market wasrelatively stable in 2005.

o Retrocession: Retrocession programs with U.S. exposuresgenerally experienced a total loss in 2005. Consequently, Jan. 1renewals saw limited capacity and price increases in the region of100 percent. Reinsurers also sought to separate U.S. and non-U.S.coverages.

o Rating Agencies: In the wake of the 2005 hurricane season,rating agencies immediately downgraded a number of reinsurers. Theyhave since been aggressive in instituting stricter capital adequacyrequirements and new measurement standards for catastrophicrisk.

o New Market Entrants: In reaction to the 2005 losses, $8.5billion of new capital entered the market, anticipating risingreinsurance rates. Though they did not play a major role at thetime of the January 1, 2006 renewals, these new reinsurers areexpected be a more significant factor later in 2006.

o Catastrophe Bonds and Alternative Risk Transfer: A recordamount of nearly $2 billion of catastrophe bonds were issued in2005, and this segment should continue to thrive in 2006.Meanwhile, the market for structured risk products remainschallenging, with accounting and regulatory issues troubling buyersand sellers.

The report is online at www.guycarp.com.