July 1 renewals show price declines moderating, growth in demand for worldwide property Cat limit: Guy Carpenter

Additional limit placed over the past few months has helped stabilize price declines at July 1 renewals, which are continuing to moderate, predominantly on programs covering United States wind, Guy Carpenter & Company, LLC notes in its July 1 Renewal Briefing.

Issued Thursday, the briefing shows that overall pricing was down again at the July renewal across virtually all geographies and lines of business. However, additional limit placed over the past few months is partially responsible for the stabilization of price declines, particularly for U.S. property, notes a statement from global risk and reinsurance specialist Guy Carpenter, a wholly owned subsidiary of Marsh & McLennan Companies.

The price declines moderation was the result of “pressure created by two seasons of pricing decreases and a significant amount of new limit,” Guy Carpenter reports. This was particularly the case for programs covering U.S. wind. “In July, for the first time over the last three renewal seasons, many markets were in a position of dwindling aggregate for U.S. wind-exposed zones.”

Based on the previous two years, Lara Mowery, managing director and head of Global Property Specialty for Guy Carpenter, suggests it is surprising reinsurers would reference lack of capacity as a reason for cutting back on a program.

“There is certainly no capacity shortage overall and reinsurance capital has grown once again,” Mowery notes in the statement. “However, the combination of a significant increase in limit purchased and margins that have continued to thin, created a dampening on the market’s response to additional rate pressure, particularly with regard to U.S. wind,” she explains.

With regard to U.S. property market, “Based on preliminary analysis, capacity that was authorized, but unused, shrunk to 17% versus 26% at July 2014,” still above the average of 15% since January of 2011, the statement notes.

“Catastrophe loss activity continued to be light overall, with 2015 losses to date generally coming from Northeast winter weather. Additionally, U.S. property per risk excess of loss placements were still dominated by traditional reinsurers with capacity remaining robust at the July renewal,” the statement adds.

Guy Carpenter further reports “increased demand for reinsurance and expansion of tailored coverage persisted through the July renewal period from previous seasons.” Briefing figures show the demand for worldwide property catastrophe coverage is up approximately 8% since the spring of 2014.

This is “primarily due to new entities purchasing coverage and companies using a portion of their savings to enhance coverage, fill in gaps or to provide additional coverage as they expand their business,” Guy Carpenter explains.

Mowery notes that with new capital becoming increasingly embedded in the reinsurance space, “this has spurred insurers’ confidence to execute business plans that may require additional limit purchased, such as geographic expansion or line of business growth. The industry is also beginning to assess solutions for some of the larger under-insured or uninsured risk issues, including expansion of flood coverage options and the evolution of cyber coverage.”

In terms of capital, Guy Carpenter reports the “abundance of alternative capital continued to impact the reinsurance market in the first half of the year, particularly in the form of catastrophe bonds.” As of July 1, 2015, US$ 21.559 billion of P&C 144A catastrophe bond risk capital was outstanding.

“Recent feedback suggests that further catastrophe bond pricing reductions will be unlikely in the near-term,” notes Cory Anger, global head of ILS Structuring for GC Securities.

Other briefing findings include the following:

• the U.S. Casualty market continued to show softening through July 1 renewals, albeit at a slower pace than experienced in 2014 and early 2015;

• there was expanded coverage and widening terms and conditions for directors and officers liability and professional liability in the United Kingdom;

• capacity increased for quota share programs in the U.S. workers’ compensation market;

• abundant reinsurance capacity exists in the aviation market; and

• coverages and capacity increased for pro rata business at the July renewal in Latin America, catastrophe activity in the Asia Pacific region has been relatively benign so far in 2015, and there have been no major Cat losses in Australia/New Zealand.