Excess capital and competition hit April renewals
Strong balance sheets, an abundance of capacity and a consolidation of buying led to lower reinsurance pricing across most territories and business segments at the April renewals.
This is the finding of Guy Carpenter, which reports that the renewals were marked by price reductions and more tailored reinsurance coverage.
“Despite a spike in insured losses during the first quarter of 2014 after severe storms and floods hit parts of Asia, Europe and the US, excess reinsurance sector capital and rising supply from traditional and alternative sources continued to impact the market and affect pricing in Asia and the US at April 1 renewals,” said James Nash, chief executive officer of Asia Pacific Operations at Guy Carpenter.
Soft pricing and a specific focus on tailored terms and conditions were again evident for US property-catastrophe business.
The bulk of protection purchased was still placed on a traditional excess-of-loss basis where capital market sources have less involvement. But alternative capacity providers continued to impact the market by offering capacity with flexible terms and conditions at reduced pricing while traditional providers responded to market conditions, protecting their market share.
This competitive environment is expected to continue into the mid-year renewals.
In Japan, expectations proved correct with easier market conditions returning. The degree of rate decreases was generally greater than expected and Japanese buyers benefitted from price and cost reductions in most main lines of business, as supply often exceeded demand.
A combination of mergers, corporate restructuring, improved cedant balance sheets and a variety of perils in catastrophe covers all culminated in reduced demand at renewal. Competition was heightened by reinsurers' strong balance sheets, the relatively high starting position of Japanese pricing as compared to historical levels, the foreign exchange depreciation of the Japanese Yen, the availability of cheap and broad retrocession cover and reinsurer growth plans.
Reinsurers’ interest in Korean casualty excess-of-loss lines was strong due to their historical performance although this brought increased competition, driven by new participants. Property excess-of-loss programmes in Korea were significantly impacted by three big risk losses in the past year. Adjustments were consequently made to the deductibles of Korean non-marine treaties. Nevertheless, there was sufficient capacity to place business.
India was hit by a number of natural catastrophes in 2013, including flooding and cyclone landfall, but the events had a limited impact on the market, with only a few companies experiencing losses.
Original property rates remained soft with no signs of correction, despite reinsurers voicing concern and retreating from proportional programs. Cedant fears of placement shortfalls notwithstanding, programmes did get placed late in the renewal, supported by select reinsurers who put up substantial lines and then leveraged their position to get equal shares on non-proportional programs.
Although softening market conditions prevailed at renewals, it was not to the extent of the wider market as many Indian programmes started from a lower base technical position.
