Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

June renewals show reinsurance price decline moderating: Guy Carpenter


At the 1st June 2015 reinsurance renewals, when key U.S. and Florida property catastrophe accounts renewed, the market saw the rate of price declines moderating to average in the high single digits, according to reinsurance broker Guy Carpenter.

Hurricane Irene satellite imageGuy Carpenter is responsible for broking a significant amount of catastrophe reinsurance business at the key June renewal and this report from the company is further evidence that while pricing has continued to decline, it is at a more moderate pace.

This had been the expectation, as reports from the market in the run up to the renewal suggested that some accounts had to be repriced, as reinsurers and ILS markets refused to support further steep double-digit price declines.

After two years of price declines averaging 15% on U.S. property catastrophe reinsurance placements, Guy Carpenter reports that declines seen at the June 2015 renewals averaged in the high single digits.

The range of price declines was dependent on the particular ceding companies individual renewal characteristics, the broker explained. Helping to hold pricing up more robustly at this renewal was the pricing pressure created by past seasons of price declines and a significant amount of new limit placed.

The combination of attractively priced reinsurance and ILS capacity, combined with a healthier Florida insurance market environment, has contributed to increased demand, according to the broker.

“Many reinsurers held the line against more extreme declines even though capacity was still plentiful and low loss experience continued,” commented Lara Mowery, Global Head of Property Specialty, Guy Carpenter.

That reflects and supports the market rumours that a number of accounts were sent back to brokers to be repriced, as reinsurers and ILS markets held off from signings refusing to support further steep declines.

“We have seen some firming in the Industry Loss Warranties (ILW) market with demand increasing. Also, while mid-year has not been a core date for retrocession renewals, there has been a significant amount of activity in this marketplace as buyers sought to offset their catastrophe exposures,” Mowery continues.

Some of this additional demand for ILW’s is said to have come from a number of insurance-linked securities (ILS) fund managers. There have been suggestions that quite a number took advantage of attractive pricing to offload some of their peaks of exposure to ILW markets.

Similarly, market participants reported that a number of reinsurers have also taken advantage of cheaper ILW supply for retrocession in the run up to June, which may have helped ILW rates to firm somewhat. This also perhaps reflects the leveling off of catastrophe bond pricing as well, as ILS investors who largely provide ILW capacity appear to have found a pricing floor.

In Florida specifically, the ongoing depopulation of Citizens helped to lift demand for reinsurance capacity, with new start up insurers seeking to build reinsurance protection.

There has also been a trend for insurers in the state to reduce their FHCF participation and to explore alternatives to this, perhaps stimulated by attractive pricing. This has also been the first year that the FHCF itself has purchased reinsurance, which has helped to lift demand as well.

“Several factors contributed to a notable increase in the amount of limit placed at June 1 this year using much of the excess capacity that has been present in the Florida market over the past couple of renewals,” stated George Carse, Managing Director and Head of the Tampa Office at Guy Carpenter. “Reinsurers focused significant support on accounts where they have maintained long-standing relationships and met our new business capacity needs with competitive pricing by the June 1 renewal date.”

Guy Carpenter notes that retrocessional reinsurance pricing has continued to soften over the first half of 2015, with ample capacity from both ILS fund managers and rated carriers defining this market.

Attractive pricing, combined with the increased availability of innovative products and new levels of cover, meant that many buyers sought additional retro purchases at the June renewal. This increased purchasing activity in certain sectors has led to some recent firming in the retro market in recent weeks, Guy Carpenter said.

Finally, Guy Carpenter notes that catastrophe bond pricing continued to remain stable over recent weeks, as “recent deal pricing and investor feedback suggested that further catastrophe bond pricing reductions in the near-term would be unlikely.” Guy Carpenter said that data suggests that the cat bond market has reached a stabilisation point now.

Guy Carpenter is the first of the brokers to report with confirmation that pricing declines are slowing. There had always been an expectation that this would happen. The continuation of the steep declines seen in recent years was just not possible.

Is this a sign of the reinsurance and ILS market finding pricing floor? Time will tell as we move through the next few renewal seasons.

Read our other reinsurance renewal coverage here.

Also read:

Re/insurers see rates down about 10% at June 1st renewal: KBW.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

Artemis ILS Asia 2023 - Insurance-linked securities conference in Singapore

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.