The decline in reinsurance pricing moderated at the January 1, 2017 renewal across most classes of business and geographies, as compared to the past three renewal seasons, Guy Carpenter & Company, LLC, global risk and reinsurance specialist and wholly owned subsidiary of Marsh & McLennan Companies reported today.
Several sectors faced increased losses, which had only a localized impact on pricing, Guy Carpenter reported, while capacity remained plentiful. According to calculations by Guy Carpenter and A.M. Best, after remaining fairly stable in 2015, dedicated reinsurance capital increased by 5 percent from Jan. 1, 2016 to Jan. 1, 2017. The convergence capital segment increased by 10 percent.
The Guy Carpenter Global Property Catastrophe Rate-on-Line index tracking property catastrophe pricing fell 3.7 percent at Jan. 1, as compared to close to 9.0 percent a year ago. The insurance-linked securities, or ILS, space, in contrast saw significant changes in pricing during the fourth quarter with decreases as high as 30 percent.
While catastrophe bond issuance in the first quarter of 2016 made it the most active first quarter in the market’s history, second quarter catastrophe bond issuance fell to its lowest quarterly level since 2011, according to Guy Carpenter. In response, catastrophe bond providers were more flexible in coverage and significantly decreased prices. Although it’s too early to judge the broader impact of these changes, Guy Carpenter says, the last round of market-wide reinsurance price decreases were triggered in part by catastrophe bond competition.
|Reinsurance ‘flush with capital’
Guy Carpenter reports that as the reinsurance sector continues to have abundant capital and price points are attractive, product innovation and coverage customization remain a key focus. The sector included many new advances, including expansion of solutions for historically difficult and under (re)insured risks such as flood.
As risk from increasingly complex sources including climate change, cyberspace and nascent technologies continue to expand, this focus on broadening solutions will translate into ongoing positive market evolution, predicts Guy Carpenter.
“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. “An abundance of available capital and improving analytics tools are essential components to create support for notable advances. An innovative mindset is the key to success in today’s marketplace as the increasing complexity of risk brings new levels of uncertainty.”
Significant global insured loss activity reached a four-year high in 2016, with insured loss increasing more than 50 percent from 2015. Guy Carpenter noted that losses were spread throughout several regions and perils with no single mega-event driving the increase. Renewal pricing impacts were localized.
|2017 outlook
“The 2017 (re)insurance market will be challenged to offer solutions that utilize increasing amounts of capital effectively in a complex landscape, requiring insurers to be increasingly diligent and responsive to prepare for the uncertainty ahead,” said David Priebe, vice chairman of Guy Carpenter and head of GC Securities. We’re continually adapting to evolving markets to ensure our clients are provided with the product offerings that best meet their needs and the needs of their constituents to adequately insure a vast range of problems. With the current abundance of capacity and low interest rate environment, the complexity of the industry’s issues will make for a challenging yet impactful year ahead.”
Although there are many areas of focus for product expansion and evolution in the coming year, with political volatility increasing globally, Guy Carpenter predicts that terrorism coverage needs will require a high level of vigilance. In keeping up with insurer needs, reinsurance is adapting to the evolving nature of terrorism and striving to close gaps in existing coverage. In addition, new technologies, big data and predictive analytics, coupled with the “sharing” economy will continue to present both challenges and opportunities for insurers in the year ahead.
Related: Top 10 U.S. reinsurance companies
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Rosalie Donlon
Rosalie Donlon is the editor in chief of ALM's insurance and tax publications, including NU Property & Casualty magazine and NU PropertyCasualty360.com. You can contact her at [email protected].
