The decline in reinsurance pricing moderated at the January 1,2017 renewal across most classes of business and geographies, ascompared to the past three renewal seasons, Guy Carpenter & Company, LLC, global risk andreinsurance specialist and wholly owned subsidiary of Marsh & McLennanCompanies reported today.

Several sectors faced increased losses, which had only alocalized impact on pricing, Guy Carpenter reported, while capacityremained plentiful. According to calculations by Guy Carpenter andA.M. Best, after remaining fairly stable in 2015, dedicatedreinsurance capital increased by 5 percent from Jan. 1, 2016 toJan. 1, 2017. The convergence capital segment increased by 10percent.

The Guy Carpenter Global Property CatastropheRate-on-Line index tracking property catastrophe pricing fell3.7 percent at Jan. 1, as compared to close to 9.0 percent a yearago. The insurance-linked securities, or ILS, space, in contrastsaw significant changes in pricing during the fourth quarter withdecreases as high as 30 percent.

While catastrophe bond issuance in the first quarter of 2016made it the most active first quarter in the market’s history,second quarter catastrophe bond issuance fell to its lowestquarterly level since 2011, according to Guy Carpenter. Inresponse, catastrophe bond providers were more flexible in coverageand significantly decreased prices. Although it’s too early tojudge the broader impact of these changes, Guy Carpenter says, thelast round of market-wide reinsurance price decreases weretriggered in part by catastrophe bond competition.

Reinsurance ‘flush with capital’

Guy Carpenter reports that as the reinsurance sector continues tohave abundant capital and price points are attractive, productinnovation and coverage customization remain a key focus. Thesector included many new advances, including expansion of solutionsfor historically difficult and under (re)insured risks such asflood.

As risk from increasingly complex sources including climatechange, cyberspace and nascent technologies continue to expand,this focus on broadening solutions will translate into ongoingpositive market evolution, predicts Guy Carpenter.

“Although current renewals indicate that the decline inreinsurance pricing is slowing, this moderation was not surprising,and the more interesting development may be the continued evolutionof coverage and solutions to meet changing client needs,” saidPeter Hearn, CEO of Guy Carpenter. “An abundance of availablecapital and improving analytics tools are essential components tocreate support for notable advances. An innovative mindset is thekey to success in today’s marketplace as the increasing complexityof risk brings new levels of uncertainty.”

Significant global insured loss activity reached a four-yearhigh in 2016, with insured loss increasing more than 50 percentfrom 2015. Guy Carpenter noted that losses were spread throughoutseveral regions and perils with no single mega-event driving theincrease. Renewal pricing impacts were localized.

2017 outlook

“The 2017 (re)insurance market will be challenged to offersolutions that utilize increasing amounts of capital effectively ina complex landscape, requiring insurers to be increasingly diligentand responsive to prepare for the uncertainty ahead,” said DavidPriebe, vice chairman of Guy Carpenter and head of GC Securities.We’re continually adapting to evolving markets to ensure ourclients are provided with the product offerings that best meettheir needs and the needs of their constituents to adequatelyinsure a vast range of problems. With the current abundance ofcapacity and low interest rate environment, the complexity of theindustry’s issues will make for a challenging yet impactful yearahead.”

Although there are many areas of focus for product expansion andevolution in the coming year, with political volatility increasingglobally, Guy Carpenter predicts that terrorism coverage needs willrequire a high level of vigilance. In keeping up with insurerneeds, reinsurance is adapting to the evolving nature of terrorism and striving toclose gaps in existing coverage. In addition, new technologies, bigdata and predictive analytics, coupled with the “sharing” economywill continue to present both challenges and opportunities forinsurers in the year ahead.

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