April 1 renewals see reinsurance pricing stabilize

Dynamic capital growth and sufficient reinsurance capacity resulted in stable renewal: Guy Carpenter

Non-traditional capacity now makes up an estimated 14% of the global property catastrophe limit, according to a new report from Guy Carpenter & Company.

The reinsurance intermediary reports that the convergence of traditional and alternative capital sources is changing the marketplace and this new environment benefited insurers at April 1, 2013, which is a significant renewal date for the Asia Pacific region.

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“The April 1 reinsurance renewal saw pricing stabilize in most regions as insurers benefited from an environment of dynamic capital growth. Much of this growth emanated from non-traditional sources, confirming that the convergence between traditional reinsurance and capital market solutions has now occurred,” said David Flandro, global head of business intelligence at Guy Carpenter, in a press release.

Reinsurance pricing in Asia generally stabilized or fell marginally this year as the adverse conditions experienced in the wake of the Tohoku earthquake in Japan and Thailand flooding in 2011 generally gave way to modest softening. Rates did increase in Korea, however.

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In the United States, non-traditional capacity is having a significant impact on property catastrophe business. The company states that traditional reinsurance pricing to date has decreased on similar coverages from the January 1 renewal.

Highlights from the brief include:

Japan: Rates decreased moderately for most catastrophe excess of loss lines in Japan due to a year largely absent of major catastrophe losses. However, the losses from the Tohoku earthquake and the Thailand floods in 2011 still influenced the 2013 renewal by limiting downward pressure on prices.

Republic of Korea: The Korean insurance market endured a relatively turbulent 2012 after being hit by three typhoons. Adjustments were consequently made to pricing, resulting in rate increases to catastrophe excess of loss treaties on a risk adjusted basis. Pricing for loss-affected risk excess of loss treaties also rose significantly.

India: The Indian domestic treaty renewal was subject to an environment similar to that faced by other territories in the Asia Pacific region. The softer market conditions saw reinsurance buyers increase their attachment points to save money or negotiate further in order to maintain a similar reinsurance spend against meaningful exposure growth.

U.S. Property Catastrophe: For the few but sizable placements renewing at April 1, traditional reinsurance pricing was down generally in the single digit range. Non-traditional capacity has impacted the market and is expected to continue to do so in the upcoming June renewals.

See Also: The Reinsurance Report in Canadian Insurance Top Broker‘s March issue

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