The July 1, 2012, renewal took place against a backdrop of plentiful reinsurance capital. During the first quarter of 2012, the Guy Carpenter Global Reinsurance Composite’s capital position increased by 4 percent to USD184.5 billion (see Figure 1). Dedicated reinsurance capital has continued to strengthen through the second quarter, moderating pricing pressures. One important factor driving these trends has been benign catastrophe activity. Although there have been upward revisions to the catastrophe losses that hit the United States during the first quarter and more US storm and wildfire activity in the second quarter, insured losses during the first six months of the year totaled about USD11 billion. (1) This is significantly below the USD76 billion recorded during the same period of 2011.
The inflow of new reinsurance capital has also been a significant feature, with between USD6 billion and USD8 billion of alternative capital entering the market since the catastrophes of 2011. This additional capacity has come from a variety of sources, including sidecar capacity and collateralized private reinsurance vehicles. However, the amount is relatively marginal in the broader context of dedicated reinsurance capital and has therefore only had a limited impact on pricing this year. Benign catastrophe activity, continued reserve releases and falling yields on high-grade fixed income securities have played a more prominent role in bolstering capital and subduing pricing pressures so far in 2012. All of these factors will continue to influence the direction of the reinsurance market between now and January 1, 2013.
1 This figure does not include the Colorado wildfires and the severe weather that hit much of the eastern United States on June 29 as estimates for these events are still developing.