Capital Stewardship Option: Maintaining the Status Quo: With an abundance of excess capital, negligible growth in global reinsurance spend and the pricing outlook continuing to soften, one of the biggest challenges facing reinsurers is deciding how to deploy this excess capital to generate a return that meets or exceeds the expectation of investors or shareholders. In the next series of GCCI posts, we consider four options good capital stewards in the reinsurance sector are currently considering: maintaining the status quo, returning capital to shareholders, pursuing organic growth or seeking M&A opportunities. The decision is not an easy one, with the best stewards employing a strategy encompassing all four options, depending upon their judgment of the market outlook and opportunities for growth.
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.
Tropical Storm Karen: Tropical Storm Karen is poised to become the first named storm to hit the United States this season. Karen, as of 2PM Eastern Daylight Time, was 240 miles south-southwest of the mouth of the Mississippi River and 275 miles south-southeast of Morgan City, Louisiana. The storm is moving north-northwest at ten miles per hour. According to the NHC, a turn toward the north and a decrease in forward speed are expected by early Saturday, with a turn toward the northeast on Sunday.
Guy Carpenter Mid-Year Report Highlights Catalysts for Growth in the (Re)insurance Industry: Guy Carpenter released its mid-year market report, highlighting a time of dynamic capital growth in the reinsurance industry. As investors supply capacity through a convergence of alternative and traditional vehicles, the report details the ways in which this new supply of capital and excess capacity has changed the nature of the sector’s capital structure.
Acing ORSA and Bringing it Home: Webinar Scheduled: October 10, 2013: The National Association of Insurance Commissioners’ (NAIC’s) Own Risk and Solvency Assessment (ORSA) goes into effect on January 1, 2015. Currently, many (re)insurers are in the process of developing and implementing their ORSA plans and approaches to the new regulation. They may be challenged over how much work has yet to be done and how best to do it. However, while some of the challenges are understandable, through “Business Management Integration” (BMI) there is an easier and more reliable way to approach this new regulation.
And, you may have missed…..
Convergence Capital’s Impact on the Reinsurance Market: The growth in convergence capital has resulted in ILS catastrophe risk pricing decoupling from price expectations in the traditional reinsurance market, with some ILS products now offering the most competitive terms for reinsurance buyers. Strong appetite for U.S. hurricane catastrophe bonds, for example, has tightened spreads in the secondary market by an average of approximately 45 percent on a weighted notional basis since issuance in 2012. Despite the significant decrease in ILS pricing over the last 12 months, investor demand continues to be robust. Indeed, projections by GC Securities indicate that the catastrophe bond market alone could reach USD23 billion by the end of 2016.