July 8, 2014 by Canadian Underwriter
Market pressures at July 1 renewals continued to drive price decreases across virtually all geographies and lines of business, many in the double-digit range, resulting in reinsurers adding to surplus capacity, reports a mid-year analysis issued Tuesday by Guy Carpenter & Company, LLC.
As loss activity remained minimal, reinsurers added to surplus capacity and additional capital continued to come into the market via alternative sources, notes a statement from Guy Carpenter, a global risk and reinsurance specialist and member of Marsh & McLennan Companies.
The mid-year analysis looks at the property market, catastrophe bonds & capital markets, terror and healthcare & life.
Improved terms and abundant capacity in a wide variety of lines has companies increasingly looking for flexibility in coverage that extends well beyond property.
“A wide variety of lines, including marine, aviation, casualty, workers’ compensation and healthcare experienced improved terms and abundant capacity,” Lara Mowery, managing director and head of Global Property Specialty for Guy Carpenter, says in the statement. “As a result, we have seen continued discussions around the expansion of terms and flexibility in adapting solutions to provide more client-specific tailored coverage that extend well beyond property,” Mowery adds.
The analysis further indicates additional capital continued to come into the market through alternative sources at mid-year. In fact, alternative capital is driving record-high catastrophe bond issuance at mid-year, notes Guy Carpenter.
Catastrophe bond issuance was a record-setting half-year issuance of US$5.7 billion of 144A property catastrophe bonds. Total risk capital outstanding now sits at an all-time high of US$20.8 billion (excluding private placements).
If there were no further activity for the rest of 2014, Guy Carpenter points out, the year would still register as the fourth largest in terms of new issuance.
With the continuation of catastrophe bond price decreases and oversubscription of placements in 2014, “a number of deals were upsized and priced significantly below their initial range during the first six months of the year, leading to a record setting pace in issuance,” the statement notes. “However, price adjustments moderated somewhat towards the end of the second quarter, especially for Florida hurricane exposed placements, although the majority of deals in this period still priced comfortably within their initial guidance.”
That said, Guy Carpenter adds “there are signs that market participants are continuing to apply consistent underwriting standards. While there is undoubtedly an abundance of investor capacity, it still appears to be acting in a reasonably disciplined manner.”
The report notes that growth of alternative capital and expansion of its range of offerings continues to impact the marketplace in a meaningful way.
“With an abundance of alternative capital, catastrophe bond pricing continues to decline,” David Priebe, vice chairman of Guy Carpenter, says in the statement. “Alternative capital is also extending its market impact through increased interest in non-catastrophe lines of business, including entities specifically focused on writing more stable business, but with a more aggressive investment strategy.”
Some other findings from the report include the following:
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