June 1 renewals show rate of price declines moderating: Guy Carpenter

The rate of reinsurance price declines is moderating, partly driven by a healthier Florida insurance environment that is prompting higher demand for reinsurance, Guy Carpenter & Company, LLC reports in announcing its June 1 renewals.

After two years of price decreases averaging 15% on U.S. property catastrophe placements, risk-adjusted pricing moderated at the most recent June renewals, notes a statement Thursday from Guy Carpenter, a global provider of risk and reinsurance intermediary services and wholly owned subsidiary of Marsh & McLennan Companies.

Price declines moderated to decreases averaging in the high single digits, “due to a combination of factors, including pricing pressure created by past seasons of price declines and a significant amount of new limit placed,” the statement notes.

“Many reinsurers held the line against more extreme declines even though capacity was still plentiful and low loss experience continued,” Lara Mowery, global head of property specialty for Guy Carpenter, says in the statement. “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 explains.

The healthier insurance environment in Florida was fuelled, in part, by companies’ desire to enhance their risk management structures.

Guy Carpenter reports that a combination of factors resulted in a material increase in new Florida exposed reinsurance limit being purchased. These included that a significant number of risks transferred out of the Florida Citizens Property Insurance Corporation (CPIC) into the private sector; there was a continued reduction in policy count for some larger regional and nationwide carriers; this was also the first renewal season in several years that the Florida Hurricane Catastrophe Fund (FHCF) had no outstanding post-event bonds; and this was the first time in history the FHCF purchased reinsurance.

“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,” comments George Carse, Guy Carpenter’s managing director and head of the company’s Tampa Office.

With regard to insurance-linked securities, “the high volume of maturities coupled with a diverse and steady stream of new issuances created a dynamic catastrophe bond market in the first quarter of 2015,” notes the statement. Through June 1, issuance stood at US$3.62 billion.

And with respect to retrocessional pricing, this “continued to soften over the first half of 2015, with plentiful capacity from both ‘funds’ and rated carriers remaining the defining feature of the market,” Guy Carpenter reports.

“This year, the continued decline in pricing and the increased availability of innovative products and new levels of cover has meant that many buyers sought additional purchases at June 1. Increased purchasing activity in certain sectors has led to some recent firming in this space,” the statement adds.