Posts Tagged ‘Reins Markets’
Lara Mowery, Global Head of Property
The impact the capital markets have had on the property catastrophe reinsurance space is undeniable. Analyzing 2013 market activity, it is also undeniable that much of the movement the market witnessed is as much driven by traditional reinsurers’ changing behaviors. While companies buying catastrophe coverage benefitted, across product type and geography, from collateralized capacity in the market, deployment of this capacity has been targeted.
Richard Banyard, Senior Vice President, Lance Finley, Managing Director, Jane Furnas, Senior Vice President and Scott VanKoughnett, Senior Vice President
Insurance policies are carefully drafted to outline coverage that is needed by policyholders while also specifying those areas where coverage is not expected to apply - the goal is to provide contract certainty, not in the usual sense of timeliness of contract signing, but from the perspective of specific policy language. Sometimes, however, contract certainty is not so certain. Recent examples have shown that insurers are increasingly facing reinterpretations of their policies by the judicial system, regulators, politicians and even the public via social media, all exerting pressure on insurers to provide coverage not previously anticipated by the drafters and underwriters of those policies. As these claims are presented to the reinsurance market, pressure is also put on reinsurers to provide coverage that they may not have originally contemplated. Insurers need to know that their reinsurers partner with them in such situations, and that reinsurance contracts provide appropriate flexibility to help ensure the reinsurers’ promise to pay. The comments made in this article are intended solely to foster discussion on this topic.
Guy Carpenter hosted “Transferring Risk - Is the Insurance and Reinsurance Industry Adequately Servings its Clients?” the Reinsurance Symposium held in Baden-Baden on October 20, 2013. The event explored a range of topics including: the gap between economic and insured losses; how new capital entering the market can move beyond property catastrophe; and measures to provide coverage for new and emerging risks.
Nick Frankland, Chief Executive Officer, EMEA
Are the insurance and reinsurance industries adequately serving their clients in the transfer of risk? The question is a timely one because much recent discussion has focused on the entry of new capital into the industries and its effect on capacity and pricing. Regulatory and economic conditions have also concentrated minds on capital optimization with reinsurance playing an increased role in risk finance that may have deflected attention from the fundamental business of protecting against risk.
In a reinsurance market with abundant excess capital and where most reinsurance programs are oversubscribed, the need for a meaningful line size or differentiated underwriting contribution has never been more relevant.
With growth opportunities limited in mature markets, many insurers are looking to emerging markets for future expansion, in particular China, Southeast Asia and Central and Latin America. Figure F-10 highlights gross written premium (GWP) growth in emerging markets compared to developed markets from a 2003 base.
As carriers explore M&A opportunities to grow in the current environment, there is strong interest from potential buyers looking for bolt-on opportunities rather than transformational transactions. Although this demand has not to-date triggered a significant increase in M&A transactions, the ingredients for more activity are now in place.
Figure F-4 highlights the relative share price performance of the reinsurance sector since January 2012, which can be considered the start of the new wave of convergence capital. The clear upward trend has benefited investors during this time.
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.