Here we review recent GC Capital Ideas posts that have focused on 2013 reinsurance pricing trends.

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 released today, 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.

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Japan Values Long-Term Continuity: As in every past year, Japanese (re)insurers look to the January 1, 2013, reinsurance renewal for guidance as to the likely state of the market for their renewals at April 1. This year they will have been encouraged with a market characterized by excess capital, overcapacity and easing prices for loss-free business. This scenario is evidenced by the Guy Carpenter Global Property Catastrophe Reinsurance Rate on Line index, which fell at renewal, albeit marginally. This environment will come as a welcome change to Japanese buyers, who have fought their way through the last two renewals against adverse market conditions caused by a series of significant losses in the Asia Pacific region.

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Chart: Guy Carpenter Regional Rate on Line Index, January 2013: There was variation regionally in the Guy Carpenter Regional Property Catastrophe Reinsurance Rate on Line (ROL) index. U.S. property catastrophe pricing was most affected by the landfall of Superstorm Sandy while other regions were flat to down.

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Chart: Guy Carpenter Global Rate on Line Index, January 2013: The Guy Carpenter Global Property Catastrophe Reinsurance Rate on Line (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.

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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.

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Guy Carpenter reports that dynamic capital growth and ample reinsurance capacity resulted in a relatively stable renewal at April 1, 2013. In a briefing released today, 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.

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Here we review GC Capital Ideas’ stories covering the key reinsurance renewals in 2012.

July 1 Reinsurance Renewals Reveal Plentiful Capacity amid Benign Catastrophe Activity, According to Guy Carpenter:  Reinsurance renewals took place against a backdrop of plentiful capacity at July 1, 2012. Capital has continued to strengthen through the second quarter of 2012, moderating pricing pressures, according to a briefing released today by Guy Carpenter & Company.

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Plentiful Capacity Sets the Stage at June 1 Reinsurance Renewals: More moderate pricing trends were evident at the June 1, 2012 reinsurance renewals as the relatively light catastrophe loss activity during the first five months of the year contributed to positive reinsurer results and plentiful capacity, according to a briefing released today by Guy Carpenter.

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Reinsurance Rates Rise at April 1, 2012 Renewals: Reinsurance rates rose as the market continues to work through the impact of the events of 2011, according to Guy Carpenter. In a briefing released today, Guy Carpenter reports that this year’s April 1 renewals are continuing the general trends observed at January 1, 2012.

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Guy Carpenter: January 1, 2012, Renewals Reveal Shift in Industry Behavior: The January 1, 2012, renewals saw a shift in industry behavior as both insurers and reinsurers implemented more sophisticated, customized approaches to risk assessment and mitigation, according to Guy Carpenter. In its 2012 global reinsurance outlook, Catastrophes, Cold Spots and Capital: Navigating for Success in a Transitioning Market, Guy Carpenter reported that reinsurers were in a position to undertake a major review of pricing and underwriting going into the renewal season.

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Now that reinsurers have had time to assess and implement their response to market conditions, there has been more willingness generally to deploy significant capacity where terms have met reinsurer requirements, particularly as renewals in May, June and July were impacted by pricing adjustments in 2011.

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At the July 1, 2012, renewal, the major risk sector of the aviation reinsurance market showed a reduction on pricing of 3 percent to 5 percent on a “like for like” exposure basis. Renewals with increased exposure saw pricing in a range of flat to a small increase. The major risk sector includes airline and aerospace covers.

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David Flandro, Global Head of Business Intelligence and Lara Mowery, Head of Global Property Specialty
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Catastrophic losses in 2011 had an acute effect on Lloyd’s and European reinsurers. Writers of property facultative cover whose books of business are heavily weighted towards the United States did not incur the same level of loss as those who suffered from last year’s significant international losses and associated contingent business interruption losses. There was nevertheless a concerted effort to increase rates in the first quarter of 2012 by all property facultative underwriters. This was particularly true of placements with significant catastrophe exposure.

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David Flandro, Global Head of Business Intelligence and Lara Mowery, Head of Global Property Specialty
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Inactivity in the traditional ultimate net loss market during December 2011, led many buyers to look early to the industry loss warranty (ILW) arena. Their objective was to secure reinsurance/retrocession protection in advance of January 1. Some large deals were bound supported by limits from the usual carriers as the anticipated influx of capacity from new entrants failed to materialize. ILW pricing was up significantly year on year in all territories and for all perils, other than in Europe, but down slightly from the high levels seen in mid-2011. As normality returned to the traditional market, the usual take up of ILWs in the early weeks of the new year was less apparent with no shortfalls to fill or program gaps to plug. Activity increased during the last weeks of the first quarter as cedents secured significant limits, predominantly for Japan earthquake cover, ahead of the April 1 inwards renewal. Another period of relative inactivity was followed in recent weeks by a further uptick in activity. Selected buyers secured significant U.S. wind protection in the ILW market. During all these peaks and troughs there has been ample capacity to meet buyer demand.

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David Flandro, Global Head of Business Intelligence and Lara Mowery, Head of Global Property Specialty
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Reviewing the amount of capacity authorized in relation to the amount taken up over the last three years, there is a clear indication that in 2012, where reinsurers deemed pricing to be adequate, they were willing to authorize significant participations. This is a return to the behavior of most of the recent renewal periods where very small adjustments in price may bring in significant additional capacity, creating something of a feast or famine dynamic. Notably, for Florida programs there were more reinsurers willing to deploy capacity at lower layers than we have seen in the past. These lower layers have typically been more capacity constrained as there have been fewer reinsurers in the broader market willing to participate particularly below the Florida Hurricane Catastrophe Fund layer.

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David Flandro, Global Head of Business Intelligence and Lara Mowery, Head of Property Specialty

Heavy insured losses sustained during the first five months of last year created a turbulent Florida renewal at June 1, 2011. Catastrophe model changes and global loss activity in the run-up to last year’s renewal created a firming and volatile market with market quoting behavior and individual program pricing showing a wide range of outcomes. There was general agreement that the market ended up 5 percent to 10 percent on average.

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David Flandro, Global Head of Business Intelligence and Lara Mowery, Head of Property Specialty

Despite suffering one of the biggest loss years ever in 2011, the reinsurance sector’s dedicated capital position was slightly up at around USD178 billion by the end of the year. During the January 2012, renewal global property catastrophe rates on line increased 9.5 percent, reflecting in part the heavy catastrophe losses sustained in 2011. Since then, loss activity has been relatively light. Insured losses during the first five months of 2012 were estimated to be around USD6 billion, well below the USD75 billion recorded during the same period of 2011. Benign catastrophe activity has again strengthened reinsurers’ balance sheets and Guy Carpenter now estimates that the global reinsurance sector’s capital position is about USD15 billion in excess of historical trends, given risks assumed. The reinsurance sector continues to function normally and, in the absence of a significant cat loss burden, the improving capital position is likely to contain any attempt at price increases throughout the year.

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