January 8, 2016 by Canadian Underwriter
International property catastrophe reinsurance rates dropped from 5% to 15% on renewal Jan. 1, after a quiet Atlantic hurricane season and with the availability of alternative sources of capital, Fitch Ratings Inc. suggested Wednesday.
“Based on broker and market reports, pricing continued to decline at the Jan. 1, 2016 reinsurance renewals, with US catastrophe reinsurance ‘loss-free’ pricing down 3%-8%,” New York City-based Fitch said in a press release.
“International property catastrophe rates deteriorated more than the US at Jan. 1, 2016, dropping 5%-15%, in line with declines at Jan. 1, 2015,” Fitch added. “Absent a significant loss event that reduces reinsurance capital, pricing is unlikely to turn upward.”
Pressure to reduce rates “is partially fuelled by low catastrophe loss experience,” Fitch noted. “The Atlantic hurricane season was quiet for a third consecutive year in 2015. Furthermore, there is abundant reinsurance capacity between and among traditional reinsurers and alternative capital sources.”
As of September 2015, the total value of property & casualty catastrophe bonds was US$21.709 billion, Guy Carpenter & Company LLC said earlier in a separate report. The report referred to cat bonds issued in accordance with Rule 144A of the United States Securities Act, which refers to the resale of restricted securities to qualified institutional buyers.
In that report – titled Catastrophe Bond Update: Third Quarter 2015 – Guy Carpenter stated that 71% of outstanding 144A P&C cat bonds “are exposed to the perils of U.S. tropical cyclone and U.S. earthquake.”
In its report Thursday, Fitch noted that the use of alternative capital “within the casualty sector is not expected to match that of the property market, reflecting reduced investor appetite for longer duration risks that are less easily modelled.”
Fitch added that the reinsurance sector “faces flat to declining demand for reinsurance as insurance companies retain more risk and centralize reinsurance purchasing.”
However, the implementation of Solvency II has added some demand for reinsurance for capital relief, Fitch noted.
“Reinsurance terms and conditions generally held steady, with ceding commissions stabilizing at the mid-to-low 30% level,” according to Fitch. “However, multi-year property treaties remain available and it is difficult to fully ascertain changes in underlying treaty terms and conditions. In some cases cyber risk is being added to casualty coverage.”