After two years of reinsurance price decreases averaging 15 percent on U.S. property catastrophe placement, risk-adjusted pricing moderated at the latest June 1 renewals, Guy Carpenter said.
“Many reinsurers held the line against more extreme declines even though capacity was still plentiful and low loss experience continued,” Lara Mowery, Guy Carpenter’s global head of property specialty, said in prepared remarks.
Of course, there were still decreases, with price declines moderating to the high single digit on average, depending on companies’ individual renewal characteristics. Guy Carpenter said that this stemmed from factures including pricing pressure created by price declines in previous seasons and a large amount of new limit placed.
Mowery said that there has been some firming in the Industry Loss Warranties market, with demand increasing. She noted that while mid-year isn’t traditionally a core data for retrocession renewals, there has also been significant activity in this marketplace with buyers seeking to offset their catastrophe exposures.
Guy Carpenter said that two years of decreased pricing, combined with a healthier Florida insurance environment, led to an uptick in reinsurance demand.
Among the factors that helped improve things in Florida: companies sought to boost their risk management structures. Also, over the last 18 months, a large number of risks transferred out of the Florida Citizens Property Insurance Corporation into the private sector. What’s more, Guy Carpenter tracked an ongoing reduction in policy count for some larger regional and national carriers that led to a higher demand for coverage.
Additionally, the Florida Hurricane Catastrophe Fund is in its first renewal season in some time that had no outstanding post-event bonds. Why does this matter? Companies could reduce their FHCF coverage and look for private market options instead, Guy Carpenter noted. This was also the first time ever that the FHCF itself purchased reinsurance.
Guy Carpenter identified a number of renewal trends during the 2015 first quarter, including:
A continued upswing with insurance-linked securities. There was $1.49 billion of 144A P/C catastrophe bond limit successfully placed with investors, the most first quarter volume ever. Also, the highest quarterly volume of 144A P/C cat bonds matured in the first quarters, giving back to investors $3.54 billion of principal. As of June 1, issuance stood at $3.62 billion, and $21.83 billion of P/C 144A catastrophe bond risk capital was outstanding.
Investors’ pricing discipline continued from the 2014 fourth quarter into the 2015 first quarter, and Guy Carpenter said that data suggests the market is stable now.
Retrocessional pricing continued softening over the 2015 first half, influenced by a bounty of capacity from funds and rated carriers. Continued price declines and a higher availability of innovative products and new levels of cover led to many buyers seeking additional purchases at June 1.
Expectations are that storm counts could fall below the short-term 1995-2014 mean, though the northern Gulf and northern Carribbean are areas to be closely watched.
Guy Carpenter is a wholly owned subsidiary of Marsh & McLennan Companies.
Source: Guy Carpenter