9 January 2015 News

Reinsurance spend continues to fall as retentions rise

Reinsurance buying spend has reduced every year for the last ten years as a result of the change in buying patterns, greater centralisation of companies and higher retentions.

That is the opinion of Nick Frankland, chief executive officer (CEO) of EMEA operations at Guy Carpenter, speaking during the broker's annual renewals discussion.

“Between now and 2009, we have seen a 25 percent reduction,” he said. “However, the reason for this price reduction is because there is still margin in the business for reinsurers.”

Frankland also spoke of the market’s alteration from one that previously responded on a global level to now just the local and regional focus which is seen.

“The impact of Hurricane Andrew affected all regions across the business; back then these large events impacted the whole industry,” he explained. “However, this changed after Katrina, Rita and Wilma (KRW) which saw an entirely local response from the US cat market, despite the industry being well capitalised. We saw this again in 2011 following the Japan and New Zealand earthquakes. We now have a market that responds locally and regionally.”

Chris Klein, head of market relationships at Guy Carpenter, added: “There has been a big regional break down and the industry is no longer subsidising the impacted regions,” he said. “But there is a similar phenomenon in Europe. Events in Germany and Norway were enough to move the renewal for these countries. There's a lot going on, but the overall trend, with plenty of capacity available, is downwards and shows a significant local loss.”

A further trend identified by both was the quest for diversification. Frankland said that this wave of diversification will bring significant variety and changes to the market as clients’ options grow.

“The market is going to become very complex. We're at the point of a very fundamental change within this industry,” he said.

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