July 1 Renewals Indicate Downward Pressure on Reinsurance Rates Likely to Continue through 2013: Guy Carpenter reports that reinsurance market rates on line (ROLs) continued to be driven by an influx of capital from third-party investors at the July 1 renewals, in spite of catastrophe losses reaching approximately USD20 billion during the first six months of 2013 (above the ten-year average for the period). In a briefing released today, Guy Carpenter comments that robust catastrophe bond, sidecar and collateralized reinsurance activity throughout the year has for the first time pushed pricing in the capital markets to “decouple” or breakaway from levels set by the traditional market. This has in turn prompted downward pressure on overall traditional market pricing.
Specialty Insurance Program Issuing Carrier Survey from Guy Carpenter: The PA/MGA market continues to thrive. Over the course of the last eight years, through our annual survey, Guy Carpenter has tracked the market from the carriers’ perspective. The 2012 results reflect change, flexibility, growth opportunities and an exciting outlook for 2013. As the entrepreneurial spirit of the PAs and MGAs pushes them to look for ways to profitably expand and grow their business, their carrier partners appear poised to work with them in order to find solutions to assist in that growth. The PA/MGA space remains an underwriting arena and as such it will be driven by underwriting profit. Hopefully, the results of this year’s survey have provided some insight into what program carriers are looking to do in order to achieve mutual growth and profitability with their partners in this vibrant insurance market segment.
Chart: Alternative Capacity as a Percentage of Global Property Catastrophe Reinsurance Limit: The increasing influence of alternative capacity is demonstrated by the chart below, which shows the growth of convergence capacity as a percentage of global property catastrophe limit from 2008 to 2013 (projected).
Influx of Convergence Capital Triggers Downward Pressure on Pricing at June 1 Renewals: Guy Carpenter & Company reports that the reinsurance sector has witnessed dynamic capital growth in 2012 and 2013, spurred by an influx of capital from alternative sources. In its June 2013 renewal briefing, Guy Carpenter finds that this surge in alternative or “convergence” capital has changed the nature of the sector’s capital structure, as investors grow increasingly comfortable with supplying capacity through a convergence of both traditional and alternative vehicles. This market dynamic has also begun to impact significantly reinsurance pricing for peak property catastrophe risks in the U.S., with surplus capacity and lower target returns driving downward pressure on pricing for June 1 renewals and likely through the remainder of 2013.
Chart: Combined Ratio, Guy Carpenter Reinsurance Composite, Q1 2013: Presents combined ratio for the Global, European and Bermuda Guy Carpenter Global Reinsurance Composites.
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Chart: Guy Carpenter Global Rate on Line Index, January 2013: The Guy Carpenter Global Property Catastrophe Reinsurance Rate on Line (ROL) index fell marginally at the January 1, 2013, renewal. This is the seventh consecutive annual renewal in which changes to the index have equaled 10 percent or less, indicating a global market with capacity appropriate to meet demand.