10 July 2013 News

New capital cut cat rates at July 1 renewals

Capital from third-party investors drove reinsurance market rates on line (ROLs) down at the July 1 renewals, as pricing in the capital markets broke away from levels set by the traditional market for the first time.

That is one of the conclusions of a study by reinsurance broker Guy Carpenter following the renewals. It said that an influx of capital from third-party investors put downward pressure on rates, despite catastrophe losses reaching approximately $20 billion during the first six months of 2013 (above the ten-year average for the period).

It said that robust catastrophe bond, sidecar and collateralized reinsurance activity throughout the year has “for the first time” pushed pricing in the capital markets to “decouple” from levels set by the traditional market. This has, in turn, prompted downward pressure on overall traditional market pricing.

According to the report, convergence capital now accounts for an estimated $45 billion of the global property catastrophe limit, or approximately 14 percent of the market.

The amount of excess capital in the market helped mitigate the impact of catastrophe losses resulting from severe tornado activity in the US and floods in parts of Europe, India and Canada during the second quarter of 2013.

“At July 1, we saw continued significant decreases in US property catastrophe programme pricing,” said David Flandro, global head of Business Intelligence at Guy Carpenter.

“Although the impact of convergence was less dramatic elsewhere, general downward pressure on rates was observed for property business in several other regions and across some casualty lines. Without further significant catastrophe losses in the remainder of 2013, we expect that this downward pricing trend will likely continue through the remainder of the year and into the January 1, 2014 renewals.”

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