Reinsurance pricing at Jan. 1 2013 was generally stable, with only loss-affected lines and regions experiencing volatility, according to a Guy Carpenter report.
"The stable renewal was driven by a combination of factors including new reinsurance capacity, reduced catastrophe losses and high levels of capital," the report says.
As for regional variations, Guy Carpenter says U.S. property-catastrophe pricing was most affected due to Superstorm Sandy. Other regions, the report says, were flat to down.
In non-catastrophe lines of business, Guy Carpenter says marine and energy saw "noticeable rate increases," but many other lines experienced reductions.
While Superstorm Sandy, high crop losses in the U.S. and other severe weather outbreaks across the globe caused 2012 insured losses of $50 billion, Guy Carpenter notes that this total is "significantly less than the insured loss sustained in 2011," and adds that the reinsurance sector enters the New Year in a strong position, "despite capital levels likely stagnating in the fourth quarter of 2012 due to Sandy."
But Guy Carpenter notes that the reinsurance sector faces continued challenges from the macroeconomic environment. "Lackluster and diminishing gross domestic product growth in both developed and developing economies continues to pressure top lines," states the report. It adds that the ongoing debt crisis in Europe and fiscal uncertainty in the U.S. have prompted carriers to seek higher-grade investments, reducing near-term credit risk but also lowering investment returns.
The report also says evidence of diminishing reserve releases means reinsurers will not be able to bolster earnings for much longer.
"All of these developments mean that underwriting performance, adaptability and capital management are now manifestly at the center of any profitable growth strategy," says Guy Carpenter.
To find profitable growth, Guy Carpenter says reinsurers must pursue strategies such as superior capital management, clear and consistent communication to ratings agencies and regulators, choosing the right domicile, and strategic mergers and acquisitions.
Regarding communication with ratings agencies, Guy Carpenter says, "The need to manage and understand the requirements and criteria of rating agencies has been reinforced by significant rating activity over the last twelve months. Many of these actions have been in response to the challenging economic environment." The demand for increased interaction and transparency, the report states, means reinsurers must carefully manage their communication with ratings agencies to ensure an optimal rating.
On domicile selection, the report says, "Regulatory environments, Solvency II equivalence, tax rates, access to talent and proximity to major markets are all important factors to consider when deciding whether to relocate to domiciles such as Bermuda, Switzerland, Ireland and Singapore."
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