Guy Carp: Reinsurance pressure continues as rates drop
Reinsurance rates continue to fall as increased competition from alternative markets, strong reinsurer balance sheets and low loss experiences continue.
According to Guy Carpenter’s June 2014 renewal briefing, terms and conditions also came under pressure and multi-year transactions continued to be an area of investigation, while traditional reinsurers sought to protect their market share and alternative providers looked to utilise growing funds.
“Assessing the outcome of the June 1, 2014 renewal, it is clear that the pace of the pricing decline observed in 2013 has not relented. Reinsurance buyers received significant rate decreases for both Florida and non-Florida renewals, compounding 2013 decreases,” said Lara Mowery, global head of Property Specialty at Guy Carpenter.
“As catastrophe bond pricing continues to fall, reinsurers are continuing to find ways to compete. New product offerings are abundant, as flexibility and tailored coverage are becoming trademarks of this rapidly evolving market.”
The broker noted that investor demand for insurance-linked securities (ILS) continues to be robust despite the significant decrease in ILS pricing that occurred over the past 18 months. “Capacity emanating from alternative markets now accounts for roughly $50 billion or 15 percent of global property catastrophe reinsurance limit,” said the report.
It also noted that although the impact of convergence capital has been most acute in the property catastrophe market, opportunities are now being sought in other business segments, such as casualty lines.
“This new capacity, coupled with more traditional reinsurance capital moving into casualty reinsurance to escape intense competition in the property catastrophe market, is likely to benefit cedents with more negotiating leverage and, ultimately, improve pricing, structure and coverage,” it said.
In Florida, reinsurance rates dropped as a result of the decline in catastrophe bond pricing and the subsequent market response, while volatility in quoting behavior for Florida business increased with the vast majority of quotes representing decreases between 5 and 15 percent.
“As reinsurers look to position themselves in a market that is particularly attractive to alternative capital, pricing approaches are more varied than has been typical for the Florida market,” said George Carse, Guy Carpenter Tampa branch manager.
“This year, heading into wind season following eight consecutive years with no hurricane loss and continued excess capacity, we are seeing solid discounts from last year’s pricing. Of course, there are still a range of outcomes around the average for individual company characteristics, so it is essential for those operating in the market to have a sound holistic and individual understanding of market dynamics.”
Retrocession pricing fell at June 1, 2014 as a consequence of over-capitalisation in the marketplace and a lack of significant losses. According to the report, this was driven by a general feeling among buyers that terms have now reached levels where transferring catastrophe exposure into the marketplace has become a more realistic option.
“Some of these tentative explorations had initial difficulties gaining traction however, suggesting perhaps that a floor on pricing is being reached for new business in the retrocession space,” said the report.
The report concluded by discussing the predicted below average hurricane season, saying that the outcome of the 2014 hurricane season “will have a strong influence in determining the future direction of reinsurance pricing and capacity”.
