A number of major reinsurance intermediaries have issued reports concerning reinsurance rate movements at the July 1 renewals. We should remember that reinsurance rates are only part of the reinsurance premium equation.

There have been projections that primary rates will start to increase by the end of the year. The question is how will this affect the reinsurance community. As we have discussed before, reinsurance rates for excess agreements are applied to the premiums, called subject matter premiums, that the primary insurer has written for whatever lines of business are being covered. When the reinsurance underwriter determines the reinsurance rate for the agreement, it is a function of the amount of exposure that the agreement has to the underlying risk. When the rates for the subject matter premiums increase without a corresponding increase in exposure, reinsurance premiums will also increase. If the reinsurance rates did not contemplate the increase in underlying rates when the reinsurance rates were originally set, the reinsurance agreement should be more profitable.