Reinsurance broker Guy Carpenter said that excess capital in the global reinsurance market, along with continued interest from alternative capacity providers and insurance-linked securities (ILS), pressured pricing at the recent April renewals.
The record high levels of capacity, both traditional and alternative sourced, available to reinsurance buyers meant that competition was also high, resulting in further price reductions and more tailored reinsurance coverage. Strong reinsurer balance sheets, high levels of available capacity and a consolidation of buying resulted in reduced reinsurance rates across most territories and lines of business, said the broker.
“Despite a spike in insured losses during the first quarter of 2014 after severe storms and floods hit parts of Asia, Europe and the United States, excess reinsurance sector capital and rising supply from traditional and alternative sources continued to impact the market and affect pricing in Asia and the United States at April 1 renewals,” commented James Nash, CEO of Asia Pacific Operations at Guy Carpenter.
For Japan, Guy Carpenter noted that early expectations of renewal conditions proved accurate as market conditions got easier and rate decreases were larger than expected. Japanese reinsurance buyers benefited from both pricing and overall cost reductions across the majority of lines of business, with supply typically exceeding demand.
Demand was down at the Japanese renewals, while at the same time supply of reinsurance capacity was up, so price reductions were almost guaranteed in this climate. Retrocessional reinsurance covers were available at cheap pricing and with broad terms, Guy Carpenter noted.
For Korea plenty of capacity was available, although there were some adjustments to deductibles of Korean non-marine treaties after some large property excess losses in the past year. Again capacity was abundant and competition high as new entrants came into the Korean market.
India saw soft rates on property renewals, despite a number of 2013 catastrophe losses and a fear that capacity might withdraw. Guy Carpenter said that April 1st renewal programs in India did get placed, supported by a number of large reinsurers putting up substantial lines and using their influence to gain equal shares on non-proportional programs.
For the U.S., which while not the focus of the April reinsurance renewals does see some action, soft market conditions and a focus on tailored coverage were evident for U.S. property catastrophe business. Guy Carpenter said that most of the capacity was placed on a traditional excess of loss basis where the capital markets are not as prevalent, but alternative capacity continued to make its presence felt.
Alternative capital played a role yet again in offering capacity with flexible terms and conditions and at lower pricing, while traditional reinsurers responded to protect their market share. This environment of high competition between alternative and traditional capital is expected to persist at the upcoming mid-year renewals, according to Guy Carpenter.
Those reporting on the April reinsurance renewals have all agreed that the conditions seen, of excess capacity, high competition and lower prices, are set to continue into the June and July renewal season. With Florida coming back into focus at that time, both for the renewal of many of its major property catastrophe reinsurance programs as well as the start of the 2014 Atlantic hurricane season, all eyes will be turned in that direction to see just how steeply renewal prices will decline.