The Guy Carpenter Global Property Catastrophe Reinsurance Rate-on-Line Index fell 11 percent at the Jan. 1, 2014 renewal, according to a preview of the company’s 2014 global renewal report. Nearly all classes and regions declined. Accessible capital continues to increase, Guy Carpenter said, and strong balance sheets and comparatively low catastrophe losses contributed to the decline. The full report is scheduled to be released January 6.
Dedicated sector capital remained at near-record levels, having risen to $322 billion at year-end 2013, said Guy Carpenter, a global risk and reinsurance specialist and member of Marsh & McLennan Co.’s. Global insured losses totaled $40 billion, compared to the ten-year average loss of $60 billion, which contributed to the ample available capital, in the reinsurance market at Jan. 1, 2014, which meant the supply of reinsurance often outstripped insurers’ demand.
“[S]trong balance sheets, relatively low loss experiences and an unprecedented influx of convergence capital spurred competition and innovation at renewal,” said Guy Carpenter. “These factors led in turn to surplus capacity across most business segments as competition spilled beyond property catastrophe lines.”
Much of the decline was driven by a 15-percent decline in the United States, but property catastrophe pricing also declined in Europe (10 percent) and the United Kingdom (15 percent) at Jan. 1, 2014, with risk-adjusted reductions of as much as 20 percent. It was the first renewal in more than 10 years in which all major territories saw pricing move in the same direction, with some isolated exceptions, Guy Carpenter said. Germany and parts of the Nordic region endured significant catastrophe losses, causing catastrophe rates for loss-affected programs to rise in 2013. Canada experienced flooding and pricing increases attributable to the country’s most expensive insured catastrophe loss year.
"It is difficult to think of another time in recent history where multiple factors have come together to support a market so focused on individual client need," said Lara Mowery, global head of property specialty at Guy Carpenter. “There is tremendous innovation driving tailored solutions at reduced pricing to the benefit of our clients.”
Pricing declines in most other business segments as well, Guy Carpenter said. Non-catastrophe business declined as reinsurers added capacity; casualty pricing generally was flat to down, despite low investment yields, attributable to persistently low-interest rates and adverse development for some U.S. workers’ comp insurers, Guy Carpenter said.
"We have seen a surge in capital, through both alternative and traditional vehicles, over the last two years, which has transformed the nature of the reinsurance sector's capital structure," said David Flandro, Head of Business Intelligence at Guy Carpenter. “Today’s market conditions present both challenges and opportunities for all market constituents.”
In response to the softening, Guy Carpenter said traditional reinsurers are offering more tailored coverage, utilizing options such as aggregate and quota share cover, multi-year arrangements and early signing opportunities at reduced pricing. New terror and cyber risk products also were offered.
“Buyers continue to place a high value on historical relationships with traditional reinsurers,” said Nick Frankland, CEO of EMEA at Guy Carpenter. “With pricing significantly lower in most lines, reinsurers are offering increased flexibility on reinstatement provisions and other terms and conditions, which is helping clients to obtain more from core partners.”
In its 2014 outlook, Guy Carpenter said excess capacity, subdued economic and premium growth, persistently low investment returns, statistically higher long-term catastrophe loss trends and reduced reserve releases, are forcing insurers and reinsurers to rethink old ways of doing business and to seek new opportunities. “The potential emergence of reserve deficiencies in particular is likely to be a more important factor over the next five years, Guy Carpenter said.
“As highlighted by Guy Carpenter research, it is becoming increasingly apparent that the reserving cycle is approaching, or in some cases passing, an inflection point where accident year deficiencies may become more common than redundancies,” Guy Carpenter said. “This is particularly apparent in long-tail lines at present and emphasizes the need to explore new and prudent growth avenues.”
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