Downward pressure on reinsurance pricing has increased since the 1 June 2013 renewal due to continued competitive pressure from alternative markets, strong reinsurer balance sheets and low loss experiences, according to Guy Carpenter & Company LLC.
In its June 2014 renewal briefing, Guy Carpenter has reported that competition increased as markets offered abundant capacity at reduced pricing.
Terms and conditions also came under pressure and multi-year transactions continued to be an area of investigation. Traditional reinsurers sought to protect their market share and alternative providers looked to capitalise on growing funds.
Investor demand for insurance-linked securities (ILS) in particular continues to be robust despite the significant decrease in ILS pricing that occurred in the last 18 months.
Capacity arising from alternative markets now accounts for roughly $50 billion or 15 percent of global property catastrophe reinsurance limit.
Although the impact of convergence capital has been most acute in the property catastrophe market, according to Guy Carpenter, with opportunities now being sought in other business segments.
An example of this is the recent movement toward longer-tail lines, demonstrating a growing willingness on the part of capital market investors to explore casualty lines.
Guy Carpenter claim this new capacity, coupled with more traditional reinsurance capital moving into casualty reinsurance to escape intense competition in the property catastrophe market, “is likely to benefit cedents with more negotiating leverage and, ultimately, improve pricing, structure and coverage”.
