GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member of FINRA/SIPC, today released an analysis of activity and trends within the catastrophe risk market from the fourth quarter of 2013, also including the outlook for 2014. According to the report, influence from direct capital markets’ participation in reinsurance programs, coupled with catastrophic insured losses well below historical averages in 2013, put significant pressure on global catastrophic reinsurance pricing. As a result of significantly reduced pricing, relative to recent years, approximately $7.1 billion worth of new property and casualty (P&C) catastrophe bonds were issued in 2013 - the second highest record year for P&C issuance.
Posts Tagged ‘reinsurance rates’
The chart compares changes at January 2014 with January 2013.
In the figure below, the January 1, 2014 average quote across all programs is represented by the line at 0 percent, while the red dots indicate reinsurers’ distances from the mean across all the programs that they quoted. The size of the line represents the variability from the average for all quotes provided by the reinsurer. Each reinsurer is represented across the bottom of the chart by its A.M. Best rating. Quotes representing non-concurrent terms were excluded.
A look back at 2013’s most viewed stories.
1. January 1, 2013 Renewals Bring Stable Reinsurance Pricing: Guy Carpenter reports that the reinsurance sector enters 2013 equipped with ample dedicated capital and stable pricing. In its 2013 global renewal report, The Route to Profitable Growth, Guy Carpenter finds that the January 1, 2013 renewals took place against a stable backdrop, with only loss-affected lines and select regions experiencing price volatility. The market was supported by a combination of factors including lower than normal catastrophe losses during the first nine months of 2012, new reinsurance capacity and record-high levels of capital.
2. July 1 Renewals Indicate Downward Pressure on Reinsurance Rates Likely to Continue through 2013: Guy Carpenter reports that reinsurance market rates on line (ROLs) continued to be driven by an influx of capital from third-party investors at the July 1 renewals, in spite of catastrophe losses reaching approximately USD20 billion during the first six months of 2013 (above the ten-year average for the period). In a briefing, Guy Carpenter comments that robust catastrophe bond, sidecar and collateralized reinsurance activity throughout the year has for the first time pushed pricing in the capital markets to “decouple” or breakaway from levels set by the traditional market. This has in turn prompted downward pressure on overall traditional market pricing.
3. Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness: Prior to the turbulence in the financial markets in 2009, insurers and reinsurers were increasing their use of enterprise risk management to make risk and capital management decisions. While this was driven in part by rating agencies and regulators, many carriers began to recognize the value of metric-based frameworks and capital models in evaluating their portfolios.
4. Chart: Guy Carpenter Global Rate on Line Index, January 2013: The Guy Carpenter Global Property Catastrophe Reinsurance 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.
5. April 1 Renewals See Reinsurance Pricing Stabilize Amid Dynamic Capital Growth: Guy Carpenter reports that dynamic capital growth and ample reinsurance capacity resulted in a relatively stable renewal at April 1, 2013. In a briefing, Guy Carpenter comments that the convergence of traditional and alternative capital sources is changing the marketplace, with non-traditional capacity now making up an estimated 14 percent of global property catastrophe limit.
6. Influx of Convergence Capital Triggers Downward Pressure on Pricing at June 1 Renewals: Guy Carpenter reports that the reinsurance sector has witnessed dynamic capital growth in 2012 and 2013, spurred by an influx of capital from alternative sources. In its June 2013 renewal briefing, Guy Carpenter finds that this surge in alternative or convergence capital has changed the nature of the sector’s capital structure as investors grow increasingly comfortable with supplying capacity through a convergence of both traditional and alternative vehicles. This market dynamic has also begun to impact significantly reinsurance pricing for peak property catastrophe risks in the United States, with surplus capacity and lower target returns driving downward pressure on pricing for June 1 renewals and likely through the remainder of 2013.
7. Chart: Alternative Capacity as a Percentage of Global Property Catastrophe Reinsurance Limit: The increasing influence of alternative capacity is demonstrated by the chart below, which shows the growth of convergence capacity as a percentage of global property catastrophe limit from 2008 to 2013 (projected).
8. Chart: Guy Carpenter Regional ROL Index, January 2013: There was variation regionally in the Guy Carpenter Regional Property Catastrophe Reinsurance ROL index. U.S. property catastrophe pricing was most affected by the landfall of Superstorm Sandy while other regions were flat to down.
9. 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.
10. Guy Carpenter’s January 1 Reinsurance Renewals Press Briefing: Nick Frankland: Guy Carpenter’s 2013 Reinsurance Renewal Report executive summary was discussed at a press briefing held in London on January 3. It reports that the reinsurance sector enters 2013 equipped with ample dedicated capital and stable pricing. Guy Carpenter found that the January 1, 2013 renewals took place against a stable backdrop, with only loss-affected lines and select regions experiencing price volatility.
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.
Guy Carpenter & Company reports that reinsurance rates-on-line fell at the January 1, 2014 renewal in nearly all classes and regions. According to Guy Carpenter’s 2014 global renewal report, strong balance sheets, relatively low loss experiences and an unprecedented influx of convergence capital spurred competition and innovation at renewal. These factors led in turn to surplus capacity across most business segments as competition spilled beyond property catastrophe lines.