Guy Carpenter & Company reports the decline in reinsurance pricing moderated at the January 1, 2017 renewal across most classes of business and geographies, as compared to the past three renewal seasons. Several sectors experienced increased loss activity, which had only a localized impact on pricing while capacity remained plentiful. After remaining fairly stable in 2015, dedicated reinsurance capital increased by 5 percent from January 1, 2016 to January 1, 2017 as calculated by Guy Carpenter and A.M. Best. The convergence capital segment increased by 10 percent.
Posts Tagged ‘renewals’
Recent Renewals Show Evidence of Changing State of Reinsurance Market
As large-scale multi-line insurers enter a period of consolidation following the significant drive to rationalize long-term strategic reinsurance purchasing, recent renewal activity suggests reinsurers are now increasingly resisting shorter-term aggressive buying strategies, according to Nick Frankland, CEO of EMEA Operations and Chris Klein, Head of EMEA Strategy Management at Guy Carpenter.
Guy Carpenter & Company reports that overall capital levels dedicated to reinsurance have stabilized, showing no growth for the first time in several years. In a highly competitive environment, companies assessed broader opportunities and the rate of incoming capital slowed. However, moderate loss experience kept capacity at abundant levels for the January 1, 2016 renewals. The continued scarcity of costly catastrophe losses and more than adequate capacity led to reinsurance pricing reductions, although there are signs the rate of descent is slowing as compared to 2015.
Assessing the impact of the continuing influx of capital into the reinsurance sector, David Priebe, Vice Chairman, Guy Carpenter, commented on ILS pricing levels. He said: “We believe current price levels for ILS could be a ‘golden compromise’ in which protection buyers perceive good value for fixed-price multi-year cover and investors continue to broaden and diversify their portfolio of holdings. With costs of issue falling and time-to-market shortening, this equilibrium could provide a substantial boost to the market that the record issuance of early 2015 portends.”
Looking at developments in the EMEA region, Nick Frankland, CEO of EMEA Operations, Guy Carpenter, described the last 12 months as a “testing period” for the market. Commenting on renewal expectations, he said: “Following another benign loss year, clients will continue to seek improved terms, yet reinsurers are beginning to get near to technical minimums, which will not allow enough scope for firm orders to be easily won.” Another influencing factor, he added, will be the impact of recent M&A activity and the interplay between the new combined groups and the existing markets. “Such a dramatic tension should work to clients’ benefit as they try to find the greatest value available and construct the most responsive panels,” he concluded.
Consistent with Guy Carpenter’s post-January 1, 2015 renewal report, the U.S. casualty reinsurance market continued to soften on both quota share and excess of loss reinsurance programs. This trend continues to be driven by the reduction in property catastrophe premiums, causing reinsurers to further diversify their overall premium writings into casualty lines and by the improved loss ratios among these underlying lines of business. As a result, reinsurance pricing continued to soften via ceding commissions increases on quota share placements (albeit at a slower pace than in 2014 and earlier in 2015) and rate decreases on excess of loss placements (subject to stable loss experience).
The trends outlined in Guy Carpenter’s January 1 renewal report continued through the first six months of 2015. Guy Carpenter’s observation that buyers were purchasing more catastrophe limit to take advantage of lower costs, continued to be borne out and even accelerated. The increased demand for reinsurance and expansion of tailored coverage persisted through the April, June and July renewals.
The (re)insurance industry continues to evolve and adapt to a changing market on many fronts. Recent areas of focus include heightened cyber security risk, increased regulation, political and economic uncertainty, low interest rates and slow economic growth. At the same time, (re)insurers are managing new capital inflows, excess capacity and few catastrophe losses.
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.