The rising cost of reinsurance could begin to put upwards pressure on primary casualty rates, particularly where the reinsurance program is linked to property, an industry conference has been told.

Speaking at the Australian Professional Indemnity Group national conference in Sydney last week, Vero Head of Casualty Alex Green said reinsurers are beginning to flex their muscles.

He says the reinsurers are telling insurers that “if you want a property reinsurance program, you also have to pay what we want on the liability side”.

Jonathan Miles, Director of Casualty, Professional Risk and Financial Institutions for Aon Benfield in Singapore, agrees.

He told the conference “the pressure is coming” with reinsurers wanting a better value rate of return for capital employed on professional indemnity and directors’ and officers’ risks.

Mr Miles said it was “not unlikely” that there would be rate increases on casualty treaties at the December 31 reinsurance renewals.

Gen Re MD and Regional Treaty Manager of Asia Pacific Chris Crowder says that with the losses experienced in 2011, particularly in a small market such as New Zealand, it is not possible for the costs to be covered purely by increasing property rates.

“Insurers and reinsurers have to take a holistic view of the market, and other lines have to fund that risk,” he said.

But Mr Green says the catastrophes haven’t reduced the number of reinsurers offering capital for liability lines – “they’ve just slowed new capacity coming in”.

He says liability rates may also begin to be impacted by the “second wave” of claims which usually follow natural disasters such as floods and earthquakes.

After the immediate property and business interruption claims come liability claims – usually with a time lag of one to three years – against insurance brokers, engineers, architects and local councils.