Traditional reinsures are no longer in the driver's seat setting U.S. catastrophe reinsurance rates as the capital markets continue to pour money into alternative vehicles and putting downward pressure on rates, according reinsurance broker Guy Carpenter & Co.
In its latest review of the July 1 renewal season, Guy Carpenter says despite catastrophe losses of approximately $20 billion for the first six months of this year, U.S. catastrophe programs witnessed “significant decreases” in pricing.
The effect, says David Flandro, global head of business intelligence at Guy Carpenter, is property business in other regions and across some casualty lines are experiencing downward pressure as well. Without significant catastrophe losses, he expects the trend to continue through the remainder of the year.
Lara Mowery, global head of property specialty at Guy Carpenter says because of excess capacity, losses in the first half of the year have not had the traditional impact on the second half. This forced the traditional markets to drop prices in order to remain competitive with the alternative financial vehicles, such as catastrophe bonds, sidecars and collateralized reinsurance.
Among some of the renewal highlights for property insurance programs:
• Loss-free U.S. property catastrophe programs saw significant decreases at July 1 renewals.
• Programs with losses saw more moderate decreases.
• U.S. property per risk pricing came under pressure.
• Global marine and energy lines reinsurance rates varied at July 1 renewal depending on territory and losses.
• Through July 1, there was $4.2 billion in property casualty catastrophe bonds issued.
On the casualty side:
• U.S. primary casualty lines pricing improved as rates increased across some segments.
• Rates hardened on primary workers' compensation, but the impact of low investment yields, reserve deficiencies and adverse development, growth in residual market volume, and the impact of the Patient Protection and Affordable Care Act, plus the expiration of Terrorism Risk Insurance Program Reauthorization Act, remain unanswered.
• Primary insurance rates in umbrella and excess liability continued to increase depending on the exposure, size of the insured and loss activity.
• Reinsurance and insurance for professional lines remain competitive except for some larger financial institutions.
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