Comparatively light catastrophe activity since the beginning of 2012 has strengthened balance sheets for reinsurers, increased already plentiful capacity and moderated pricing trends, according to a briefing from Guy Carpenter, a provider of risk and reinsurance intermediary services.
“The reinsurance sector continues to function normally, and, in the absence of a significant catastrophe loss burden, the improving capital position is likely to contain any attempt at price increases throughout the year,” said David Flandro, global head of business intelligence for Guy Carpenter.
Estimated insured losses are near $6 billion since the new year, compared with $75 billion during the same period last year. The global reinsurance sector’s capital position is currently estimated to be $15 billion in excess of historical trends.
“Quoting behavior for non-Florida accounts was more varied than for Florida accounts, likely reflecting the difference in reinsurer appetites across renewals exposed to a broader geographic base and significantly diverse business focus,” said Lara Mowery, head of global property specialty. “Even as quoting volatility declined, there again was evidence of reinsurers taking a more tailored approach to each individual renewal. As seen at the January and April renewals, reinsurers are implementing more sophisticated approaches using custom risk measures, based their own research and experience.”
The briefing, “Plentiful Capacity Sets the Stage at June 1,” includes an analysis of the improving capital position of the reinsurance sector, projected hurricane activity for the year and the latest reinsurance renewals season in Florida, as well as updates on the property retrocession, property facultative and industry loss warranty (ILW) markets.
Below are selected highlights directly from the briefing:
Florida reinsurance renewals
• While the January and April renewals continued the trend of generally increasing pricing, renewals have become flatter at June 1, with very light catastrophe losses to date contributing to plentiful capacity.
• Variation from the average quote for Florida renewals has moderated from down 15 percent to up 16 percent in 2011 to down 7 percent to up 6 percent in 2012.
• The more significant price increases indicated by some in the industry earlier in 2012 did not materialize, although pricing was up slightly on average.
Hurricane activity in 2012
• Despite the early start to the 2012 hurricane season with the formation of tropical storms Alberto and Beryl in May, the forthcoming season is expected to see reduced activity overall.
• Meteorologists expect key atmospheric and oceanic patterns to hinder tropical cyclone development this year.
• Predicted steering patterns suggest the western Caribbean and Gulf of Mexico region in particular may be vulnerable to landfalling storms and/or hurricanes in 2012.
• The upwards pricing movements in the retrocession market during the January renewals continued into June in both direction and magnitude.
• Hardening rates reflected the unprecedented run of international losses in 2011 and continuing uncertainty surrounding ultimate loss numbers from these events, particularly the Thailand floods.
• Actual rate rises were mitigated by the fact that most post-January 1 programs had already experienced rate increases in 2011.
• Writers of property facultative cover with books of business heavily weighted toward 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 1Q 12 by all property facultative underwriters, particularly for placements with significant catastrophe exposure.
• With 2012 losses from tornado activity substantially lower than 2011, and the lack of any significant global catastrophe to date, rate increases should continue to be modest at best in the near term.
• Capacity remains at or near 2011 levels.
Industry loss warranty market
• ILW pricing was up significantly in all territories and for all perils (other than in Europe), but down slightly from the high levels seen in mid-2011.
• As normalcy returned to the traditional market, the usual takeup of ILWs in the early weeks of 2012 was less apparent. A period of relative inactivity was followed by an uptick in activity in recent weeks.
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