January 2014 Renewal Report: Capacity: Evolution, Innovation and Opportunity: The January 1, 2014 renewal saw rates on line (ROLs) fall significantly in nearly all regions and business segments as relatively low loss experiences, strong balance sheets and an influx of capital spurred competition and innovation in the reinsurance market. This culminated in a marketplace focused on meeting individual client needs as reinsurers reacted to the challenge posed by alternative markets and alternative markets, in turn, sought to deliver unique solutions. Insurers also looked to capitalize by adapting their buying strategies and prioritizing their risk transfer goals.
Convergence Capital’s Impact on the Reinsurance Market: The growth in convergence capital has resulted in insurance linked securities (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.
Chart: Guy Carpenter Global ROL Index, January 2013: The Guy Carpenter Global Property Catastrophe 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.
Indexation Clauses in Liability Reinsurance Treaties: A Comparison Across Europe: The indexation clause - otherwise referred to as the stability clause, inflation clause, or severe inflation clause is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss reinsurance treaty over the duration of the claims payout pattern. The clause is only relevant to losses that are of a long-tail nature (that take a long time to become paid) and is commonly found in the terms and conditions of motor liability, general liability and professional liability excess of loss reinsurance contracts of European cedents.
Chart: Return on Equity for Guy Carpenter Reinsurance Composite: Chart presents return on equity for the Guy Carpenter Global Reinsurance Composite, 2004 through 3rd Quarter 2013.
And, you may have missed…..
GC Securities* Acts as Sole Financial Advisor on the Second Largest Ever M&A Transaction in the Lloyd’s Market: GC Securities* is acting as sole financial advisor to the shareholders of Canopius Group Limited (”Canopius”) in the sale of Canopius to NKSJ Holdings, through its insurance subsidiary Sompo Japan Insurance Inc.
*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.