The competitive reinsurance pricing environment will push companies to innovate in 2014, say property and casualty insurance experts at the turn of the New Year.
Guy Carpenter says its global property catastrophe reinsurance rate-on-line index fell by 11% at the Jan. 1 renewal, driven by a 15% decline in the U.S., while European and U.K. prices fell by 10% and 15%, respectively.
"It is the first renewal in over a decade where all major territories saw pricing move in the same direction," says a summary of GC's upcoming renewal report.
The company saw softening market conditions in most business segments as reinsurance capacity increased. Capital too remained at near-record levels, having risen to $322 billion at the end of last year—now including, says Willis Re, about $50 billion in new capital from non-traditional sources.
Combined with lower-than-usual global insured losses ($40 billion compared to the 10-year-average of $60 billion), Guy Carpenter says the amount of capital available as of January 1, 2014 means reinsurance supply outstripped demand.
"It is difficult to think of another time in recent history where multiple factors have come together to support a market so focused on individual client need. There is tremendous innovation driving tailored solutions at reduced pricing to the benefit of our clients," said Lara Mowery, global head of Property Specialty at Guy Carpenter, in a statement.
Willis Re, meanwhile, predicts that reinsurers can see up to a 25% decline in premium revenue over the next 12 months following the start of 2014, caused by a halving of natural and man-made catastrophe events in 2013 as well as "muted" demand from buyers due to regulatory changes.
An A.M. Best report on the property and casualty industry's performance through the first nine months of 2013 notes that reinsurance pricing, influenced by third-party capital convergence in the sector, pressured rates by as much as 20% in the U.S. in the June and July renewal seasons.
"If this trend continues…it will place downward pressure on other lines of business as traditional companies look to put capital to work elsewhere," A.M. Best says.
Reinsurers are dealing with the pricing environment and the circumstances causing it in various ways.
Peter Hearn, chairman of Willis Re, says that larger reinsurers are expanding into specialty lines and developing multi-channel capacity offerings, while smaller reinsurers are seeking pooling arrangements to gain access to business "they might not otherwise see in their local markets."
More reinsurers are also exploring sidecar offerings alongside traditional reinsurance options, says A.M. Best.
According to A.M. Best's P&C report, the reinsurance industry experienced an underwriting gain of $2.7 billion in the first nine months of 2013, compared to $1.5 billion in the same period of the previous year. Reinsurers' combined ratio improved by 5.5 points, to 84.4, compared to the first nine months of 2012, mostly due to low catastrophe losses in 2013.
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