Interest in the catastrophe-bond market is picking up, the investor base is expanding, and “non-traditional” capacity is pushing down reinsurance-renewal pricing as institutional investors show a willingness to break from price levels set by the traditional market, a new report says.
In a May update from GC Securities, Guy Carpenter says, “During the first quarter there is no question that the capital markets had a dampening influence on rate conditions at the April 1 renewals and are having a dramatic dampening influence on expected conditions for June and July renewals.”
Noting the investors' break from the traditional-market pricing, Guy Carpenter says that institutional money is offering capacity to Florida wind at 40 percent less than last year's pricing. The report says this does not mean that the risks are priced incorrectly, but rather the institutional investors do not have the same capital costs as reinsurers, “and therefore can, on a sound basis, charge less for peak U.S. wind risk than the traditional reinsurance market on a sustained basis.”
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