A new report from Guy Carpenter highlights the significant fall in rates on line. The firm attributes this fall to relatively low loss experiences, strong balance sheets and an influx of capital spurred competition and innovation in the reinsurance market.
This means that the marketplace focused on meeting individual client needs to combat the challenge posed by alternative markets. Insurers also aimed to adapt their buying strategies and prioritise their risk transfer goals.
Asked about the continued increase in retention levels on the primary side, David Flandro, head of global business intelligence, said: “Premium retention rates have been increasing since 2009. However, it is somewhat of a paradox. Primary insurers are retaining more at a time when the cost of debt is increasing, the cost of equity is increasing and the cost of reinsurance is falling. Why is the sector retaining more?"
"It is our job as brokers to understand the corporate objectives of each of our clients and to gain a full understanding of their coverage needs. That is how we will encourage companies to reduce their retention levels and increase their reinsurance purchases.”
Guy Carpenter’s property catastrophe reinsurance rates on line index fell by 11 percent. The US in particular faced a 15 percent decline, while property catastrophe pricing in the UK and Europe also came under pressure, with rates falling by between 10 and 15 percent. This is the first renewal in over a decade where all major territories have seen pricing fall.
Conversely, the cat bond sector showed continued growth. Flandro said: “2013 has been a record year in terms of cat bond issuances. In 2013, we have seen US$7.1 billion in cat bond issuances. However, perhaps more importantly, total secondary capacity outstanding at the end of the year stood at $18.6 billion. The market is clearly growing and the appetite for this product is simply greater than what can currently be provided.”
In his concluding comments, Nick Frankland, CEO of Guy Carpenter's EMEA operations called for closer co-operation between the insurance and reinsurance sectors in order to enhance product development and better meet client needs. “The challenge for the reinsurance industry is firstly to look at what it is delivering as a basic product to the insurance sector. Then it is for us to go to the insurance industry and assess the products that they are delivering to the commercial world and the public at large. It is clear that the insurance industry is simply not taking on enough risk. We have to find a way of bridging this gap. If the insurance sector cannot meet the needs of all of their clients, then we will have to work with them to encourage them to deliver the required solutions by bringing in the reinsurance capacity to support their efforts."
