Reinsurance pricing fell at the 1 January 2015 renewals in many segments, affecting almost all lines of business and geographies, according to Guy Carpenter.
According to its 2015 global renewals report, the lack of costly catastrophes resulted in global insured losses for 2014 of approximately $30 billion, the lowest total in four years and 25 percent lower than 2013.
Another major driver, third party capital, continued to flow into the reinsurance market as institutional investors such as pension funds and hedge funds sought higher yields amid a persistent low interest rate environment.
According to the report, convergence capital has expanded, utilisation within catastrophe products grew to 18 percent of total catastrophe limit, or $60 billion, up from 15 percent at year-end 2013.
Guy Carpenter claimed that this was a contributing factor to the moderate expansion of overall catastrophe limit purchased as pricing came down and buyers were able to secure more limit at lesser cost.
Alternative capital continues to access the reinsurance market in a variety of forms. Industry loss warranties decreased through 2014 as price reductions made indemnity protections more attractive but this was more than offset by growth in collateralised reinsurance, sidecars and catastrophe bonds.
Guy Carpenter said: “This was well illustrated by the growth in catastrophe bond issuance through 2014, a record setting year with 144A property and catastrophe bond issuance of approximately $8.03 billion and risk capital outstanding at nearly $23 billion as of 31 December 2014.
These factors led, in turn, to surplus capacity across most business segments as competition spilled beyond property catastrophe lines.
Elsewhere, the Guy Carpenter Global Property Catastrophe Reinsurance Rate-on-Line Index fell by 11 percent at the renewals. Renewals continued to be characterized by lower rates, excess capacity and broader terms and conditions.
“Market conditions that continue to bring downward pressure on pricing are being met with tremendous, client-focused innovation,” said Lara Mowery, global head of property specialty at Guy Carpenter.
“The result has been a customised approach with expanded product offerings and terms and conditions that benefit our clients.”
