Guy Carpenter & Company, LLC, has reported that “after two years of price decreases averaging 15 percent on U.S. property catastrophe placements, risk-adjusted pricing moderated at the most recent June renewals.
“Price declines moderated to decreases averaging in the high single digits, with the range around the average dependent on companies’ individual renewal characteristics. This was due to a combination of factors, including pricing pressure created by past seasons of price declines and a significant amount of new limit placed,” the bulletin continued.
Guy Carpenter’s Global Head of Property Specialty Lara Mowery explained: “Many reinsurers held the line against more extreme declines even though capacity was still plentiful and low loss experience continued. We have seen some firming in the Industry Loss Warranties (ILW) market with demand increasing. Also, while mid-year has not been a core date for retrocession renewals, there has been a significant amount of activity in this marketplace as buyers sought to offset their catastrophe exposures.”
In analyzing the situation in Florida, Guy carpenter said it is a “healthier insurance environment,” as there’s been greater demand for, partially fueled by “companies’ desire to enhance their risk management structures.”
The Florida Citizens Property Insurance Corporation (CPIC) saw a number of policies move into the private sector. So did the Florida Hurricane Catastrophe Fund (FHCF), largely due to the fact that this was the “first renewal season in several years that they had no outstanding post-event bonds, allowing companies to reduce their FHCF coverage and explore private market alternatives. Additionally, this was the first time in history the FHCF purchased reinsurance. The combination of these factors led to a material increase in new Florida exposed reinsurance limit being purchased.”
The report described Insurance-Linked Securities (ILS) as “a dynamic catastrophe bond market in the first quarter of 2015,” which was due to a “high volume of maturities coupled with a diverse and steady stream of new issuances. There was $1.49 billion of 144A P&C catastrophe bond limit successfully placed with investors, the most first quarter volume in history. Furthermore, the highest quarterly volume of 144A P&C cat bonds matured in the first quarter, returning $3.544 billion of principal to investors. Through June 1, 2015 issuance stood at $3.62 billion.”
As of June 1, 2015, there was $21.83 billion of P&C 144A catastrophe bond risk capital outstanding. In addition Guy Carpenter reported that “investors’ pricing discipline that emerged in the fourth quarter of 2014 persisted into the first quarter of 2015 as recent deal pricing and investor feedback suggested that further catastrophe bond pricing reductions in the near-term would be unlikely. Data suggests the market has currently reached a stabilization pôint.”
Retrocessional pricing also “continued to soften over the first half of 2015, with plentiful capacity from both ‘funds’ and rated carriers remaining the defining feature of the market. This year the continued decline in pricing and the increased availability of innovative products and new levels of cover has meant that many buyers sought additional purchases at June 1. Increased purchasing activity in certain sectors has led to some recent firming in this space.”
Those conditions could of course change as they are somewhat subject to hurricane activity, which has been minimal. “Seasonal outlook providers expect 2015 basin counts to fall below the long-term mean of 1955-2014,” the report said. “The expected counts also fall clearly below the short-term 1995-2014 mean. So while this indeed may be a quiet year, the northern Gulf and northern Caribbean remain areas to watch closely.”
Source: Guy Carpenter & Company
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