Decline in Reinsurance Prices Slowed at January Renewal: Carpenter

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Reinsurance pricing continued trending downward at the Jan. 1, 2017 renewal — across most classes of business and geographies, but the pace of that decline is slowing, according to Guy Carpenter & Co.

Although several sectors experienced increased loss activity, the result was only a localized impact on pricing while capacity remained plentiful, Carpenter said.

“After remaining fairly stable in 2015, dedicated reinsurance capital increased by 5 percent from Jan. 1, 2016 to Jan. 1, 2017 as calculated by Guy Carpenter and A.M. Best,” the company said, noting that convergence capital increased by 10 percent.

Property catastrophe pricing fell 3.7 percent at Jan. 1, compared to close to 9.0 percent a year ago, according to the Guy Carpenter Global Property Catastrophe Rate-on-Line Index.

By contrast, the insurance linked securities (ILS) sector “saw dramatic movement in pricing during the fourth quarter with decreases as high as 30 percent,” the reinsurance broker continued.

Catastrophe bond issuance in the first quarter of 2016 made it the most active first quarter in the market’s history, compared to the second quarter when catastrophe bond issuance fell to its lowest quarterly level since 2011, said Carpenter.

“In response to this diminished pipeline, catastrophe bond providers responded with greater flexibility in coverage and significant decreases in price,” the company said. “While it is too early to judge the broader impact of these changes, the last round of market-wide reinsurance price decreases were triggered in part by catastrophe bond competition.”

Product Innovation

“As the reinsurance sector continues to be flush with capital and price points are very attractive, product innovation and coverage customization remain a key focus,” the company said, citing new advances such as the expansion of solutions for historically difficult and under re/insured risks such as flood.

“As risk from increasingly complex sources including climate change, cyber space and nascent technologies continue to expand, this focus on broadening solutions will translate into ongoing positive market evolution,” the Carpenter renewal analysis went on to say.

Global insured loss activity reached a four-year high in 2016, with insured losses increasing over 50 percent from 2015, the report said, explaining that losses were spread throughout several regions and perils, which meant that renewal pricing impacts were localized.

“Although current renewals indicate that the decline in reinsurance pricing is slowing, this moderation was not surprising and the more interesting development may be the continued evolution of coverage and solutions to meet changing client needs,” said Peter Hearn, CEO of Guy Carpenter.

Source: Guy Carpenter