As Guy Carpenter predicted at the beginning of 2015, buyers continued to purchase more catastrophe limit to take advantage of the lower prices that have already occurred in most business segments and geographies.
Continuing the trend at June 1, price declines moderated somewhat, particularly on programs covering U.S. wind. This was due to a combination of factors including pricing pressure created by the past two seasons of decreases and a significant amount of new limit placed. While capacity is still plentiful and low loss experience continues, many reinsurers held the line against the more extreme declines.
In June and July, for the first time over the last three renewal seasons, many markets were in a position of dwindling aggregate for U.S. wind-exposed zones. The most significant examples were seen in new covers or expanded layers where reinsurers were more focused on price adequacy for providing new limit.
Additional limit placed over the past few months has been one factor in the stabilization of price declines. The chart below details the growth in demand for worldwide property catastrophe coverage from the spring of 2014 to the present. It is significant to note this growth is occurring at a time when the large nationals/globals are increasing retentions and co-participations and generally spending less on reinsurance protection. While growth in demand has been measurable, its primary cause stems from companies using a portion of their savings to enhance coverage or fill in gaps and to provide additional coverage as they expand their business.
To date, much of this expansion has occurred on U.S. wind exposed business and solutions shifting risk from government entities to the private market. Decreasing reinsurance costs for example, have allowed companies to take out significant numbers of risks from Florida Citizens, shifting responsibility for these policies to private insurers and reinsurers. Increases in limit purchased are also the result of expanded use of reinsurance by large pools. Flood Re and Pool Re in the United Kingdom and the Florida Hurricane Catastrophe Fund are significant first time buyers of reinsurance in 2015 (Flood Re coverage to incept in 2016).
The influx of new capital and the growing embeddedness of this capital in the reinsurance space have spurred confidence in the market environment allowing many companies to make changes that require additional limit purchased such as geographic expansion or line of business growth. This is notable, but the next step in this process, that has the potential to increase demand much more significantly, is growth in coverages that don’t yet fully exist in the insurance space. The industry is just 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.