7 January 2015 News

Pricing trend continues at January renewals

In a continuing trend, reinsurance pricing fell at the January 2015 renewals in almost all lines of business and geographies.

This is according to Guy Carpenter’s latest report which added that a major factor driving market conditions at the renewals was the lack of high-cost catastrophes. This resulted in global insured losses for 2014 of approximately $30 billion, the lowest total in four years and 25 percent lower than 2013.

Third party capital also contributed as it continued to flow into the reinsurance market with pension funds and hedge funds seeking higher yields amid a persistent low interest rate environment.

According to the report, as convergence capital has expanded, utilisation within catastrophe products grew to 18 percent of total catastrophe limit or $60 billion, up from 15 percent at the end of 2013.

“This was a contributing factor to the moderate expansion of overall catastrophe limit purchased as pricing came down and buyers were able to secure more limit at lesser cost,” said the report.

Industry loss warranties (ILWs) decreased through 2014 as price reductions made indemnity protections more attractive. However, this was more than offset by growth in collateralised reinsurance, sidecars and catastrophe bonds.

2014 was a record year for growth in catastrophe bond issuance, with 144A property and catastrophe bond issuance of approximately $8 billion and risk capital outstanding at nearly $23 billion as of December 31, 2014.

The Guy Carpenter Global Property Catastrophe Reinsurance Rate-on-Line (ROL) Index fell by 11 percent at the renewals. Renewals continued to be characterised by lower rates, excess capacity and broader terms and conditions.

“The sustained influx of capital from new entrants and growth from traditional sources continues to reshape the reinsurance landscape’s capital structure and drive innovation in the form of insurance-linked securities (ILS) and collateralised aggregate solutions,” said David Priebe, vice chairman of Guy Carpenter.

“We are also seeing reinsurers execute strategic decisions through the utilisation of third party capital facilities and M&A activity in response to new market realities; which is further blurring the lines between ‘alternative’ and ‘traditional’ markets.”

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