‘Golden compromise’ ahead for cat bond pricing: Guy Carp
The continuing influx of capital, including via insurance-linked securities (ILS), into the reinsurance sector is stabilising the pricing of catastrophe bonds, according to Guy Carpenter.
Speaking at the broker’s annual press conference at the Monte Carlo Rendez-Vous, David Priebe, vice chairman of Guy Carpenter, said: “We believe current price levels for ILS could be a ‘golden compromise’ in which protection buyers perceive good value for fixed-price multi-year cover and investors continue to broaden and diversify their portfolios of holdings.
“With the cost of issuing falling and time-to-market shortening, this equilibrium could provide a substantial boost to the market that the record issuance of early 2015 portends.”
Priebe added that Guy Carpenter anticipates ample capacity in the US casualty reinsurance market, with pricing not expected to firm at the January 2016 renewals. The broker also expects US property reinsurance prices to remain weak as supply continues to exceed demand.
“It also remains to be seen whether the tactical exploitation of soft markets by some buyers, and reinsurers’ resistance to aggressive demands for decreases will be repeated at January 1,” Priebe said.
Alex Moczarski, president and chief executive of the broker, added that the reinsurance market was continuing to evolve and adapt to changing and challenging market conditions on several fronts.
“Continuing inflows of new capital and moderate loss experience mean that capacity remains abundant, maintaining pressure on pricing, terms and conditions,” Moczarski said.
“The long predicted consolidation of the market has now started, with inevitable consequences for rationalising reinsurance buying.”
Commenting on pricing, Moczarski added that average decreases had been mitigated ‘somewhat’ by more moderate decreases in US catastrophe reinsurance, especially wind peril.
He said: “Reinsurers were more successful in resisting demands for large price reductions following two years of steep declines, while demand actually increased in some lines as clients continued to seek access to innovative new products and improved terms and conditions.”
