Guy Carpenter today released its July 1 Renewal Briefing that shows price declines have continued to moderate, predominantly on programs covering US wind. Overall pricing was down again at the July renewal across virtually all geographies and lines of business. However, additional limit placed over the past few months is partially responsible for the stabilization of price declines, particularly for US property. Increased demand for reinsurance and expansion of tailored coverage persisted through the July renewal period from previous seasons.
“It was hard to imagine based on the two previous years that we would hear a reinsurer reference lack of capacity as a reason for cutting back on a program, but this did occur at times this June and July,” said Lara Mowery, Managing Director and Head of Global Property Specialty for Guy Carpenter. “There is certainly no capacity shortage overall and reinsurance capital has grown once again. However, the combination of a significant increase in limit purchased and margins that have continued to thin, created a dampening on the market’s response to additional rate pressure, particularly with regard to US wind.”
Renewals & Pricing
Pressure created by two seasons of pricing decreases and a significant amount of new limit placed led to price declines moderating over the past couple of months, particularly on programs covering US wind. In July, for the first time over the last three renewal seasons, many markets were in a position of dwindling aggregate for US wind-exposed zones.
Demand for worldwide property catastrophe coverage has continued to grow and since spring 2014 is up around 8 percent based on current analysis, primarily due to new entities purchasing coverage and companies using a portion of their savings to enhance coverage, fill in gaps or to provide additional coverage as they expand their business.
“New capital continues to flow into the market and become increasingly embedded in the reinsurance space,” Ms. Mowery added. “This has spurred insurers’ confidence to execute business plans that may require additional limit purchased, such as geographic expansion or line of business growth. The industry is also beginning to assess solutions for some of the larger under-insured or uninsured risk issues, including expansion of flood coverage options and the evolution of cyber coverage.”
As noted above, pricing pressure created by the past two seasons of decreases and a significant amount of new limit placed contributed to price declines moderating on programs covering US wind. There was increased demand for limit this year but it was particularly prevalent at the June and July renewals. Catastrophe loss activity continued to be light overall with 2015 losses to date generally coming from Northeast winter weather. Additionally, US property per risk excess of loss placements were still dominated by traditional reinsurers with capacity remaining robust at the July renewal.
Global Market Highlights
In Latin America, coverages and capacity increased for pro rata business at the July renewal. The catastrophe activity in the Asia Pacific region was relatively benign so far this year and losses that did occur did not impact the July renewals. While rates continued to decline, they did so to a lesser degree. In Australia/New Zealand, there have been no major catastrophe losses but there were frequent storm/hail losses in the first half of the year. This impacted net accounts of insurers and on reinsurers writing quota share and aggregate excess of loss reinsurance.
Catastrophe Bonds & Capital Markets
“Investors’ pricing discipline persisted into the first half of 2015 and recent feedback suggests that further catastrophe bond pricing reductions will be unlikely in the near-term,” said Cory Anger, Global Head of ILS Structuring, GC Securities.*
The highest quarterly volume of 144A P&C cat bonds matured in the first quarter, returning USD 3.544 billion of principal to investors. This trend continued into the second quarter as an additional USD 1.606 billion of catastrophe bonds matured, resulting in USD 5.15 billion of outflows on a gross basis in the first half of 2015. This was offset by USD 3.84 billion of primary issuance via 16 transactions including two from new sponsors. As of July 1, 2015, USD 21.559 billion of P&C 144A catastrophe bond risk capital was outstanding.
The casualty market continued to show softening through July 1 renewals albeit at a slower pace than experienced in 2014 and early 2015. Ceding commissions continued to show moderate improvements with excess of loss programs seeing modest rate reductions.
UK Professional Liability
In the United Kingdom, directors and officers liability and professional liability saw expanded coverage and widening of terms and conditions. There was a trend toward more consolidation of programs and reinsurers are monitoring cyber risk accumulations within this sector specifically and over their entire portfolios.
Capacity increased for quota share programs in the US workers compensation market. Among the July renewals, additional and higher single claimant limit quoting and binding occurred up to USD 20 million. Additionally, the renewal of the Terrorism Risk Insurance Program Reauthorization Act brought more stability to this market.
Global Aviation & Aerospace
*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and FINRA/NFA/SIPC member. 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.