Guy Carpenter reports that the April 1, 2014 renewal was marked by price reductions and more tailored reinsurance coverage. Strong balance sheets, an abundance of capacity and a consolidation of buying led to lower reinsurance pricing across most territories and business segments at the renewal.
“Despite a spike in insured losses during the first quarter of 2014 after severe storms and floods hit parts of Asia, Europe and the United States, excess reinsurance sector capital and rising supply from traditional and alternative sources continued to impact the market and affect pricing in Asia and the United States at April 1 renewals,” said James Nash, CEO of Asia Pacific Operations at Guy Carpenter.
Pre-renewal expectations proved correct as easier market conditions returned to Japan at April 1, 2014. The degree of rate decreases was generally greater than expected and Japanese buyers benefitted from price and cost reductions in most main lines of business, as supply often exceeded demand.
Mergers, corporate restructuring, improved cedent balance sheets and a combination of perils in catastrophe covers all culminated in reduced demand at renewal. On the supply side, competition was heightened by reinsurers’ strong balance sheets, the relatively high starting position of Japanese pricing as compared to historical levels, the foreign exchange depreciation of the Japanese Yen, the availability of cheap and broad retrocession cover and reinsurer growth plans.
Republic of Korea
Property excess of loss programs in Korea were significantly impacted by three big risk losses in the past year. Adjustments were consequently made to the deductibles of Korean non-marine treaties. Nevertheless, there was sufficient capacity to place business.
Reinsurers’ interest in Korean casualty excess of loss lines was strong at April 1 renewals due to their strong historical performance. This, however, brought increased competition at renewals, driven by new participants in the space.
Although India was hit by a number of natural catastrophes in 2013, including flooding and cyclone landfall, the events had a limited impact on the market, with only a few companies picking up losses. Original property rates remained soft with no signs of correction, despite reinsurers voicing concern and retreating from proportional programs. Notwithstanding cedent fears of placement shortfalls at April 1, programs did get placed late in the renewal, supported by select reinsurers who put up substantial lines and then leveraged their position to get equal shares on non-proportional programs.
Although softening market conditions prevailed at renewals, it was not to the extent of the wider market as many Indian programs started from a lower base technical position.
Soft pricing and a specific focus on tailored terms and conditions were again evident at April 1, 2014 for US property catastrophe business. Although the bulk of protection purchased was still placed on a traditional excess of loss basis where capital market sources have less involvement, alternative capacity providers continued to impact the market by offering capacity with flexible terms and conditions at reduced pricing while traditional providers responded to market conditions, protecting their market share. This competitive environment is expected to continue into the mid-year renewals.