Overall capital levels dedicated to reinsurance have stabilised, showing no growth for the first time in several years, according to Guy Carpenter’s 2016 global January renewal report.
The report, the Reinsurance Market 2016: Innovation and Customization, also showed moderate loss experience kept capacity at abundant levels for the 2016 renewals.
The continued scarcity of costly catastrophe losses and more than adequate capacity led to reinsurance pricing reductions, although it was reported that there are signs the rate of descent is slowing compared to 2015.
The report revealed that pricing declined for most lines of business and geographies but the rate of decline moderated, particularly in US property catastrophe.
In 2015, global significant insured losses from catastrophes reached approximately $30.5 billion in 2015, compared to $32 billion 2014, according to the report. The most significant man-made disaster occurred in Q3 with the explosion at the Port of Tianjin in China, in August. The event caused insured losses between $1.6 billion to $3.3 billion.
The report shows that in 2015 the industry experienced an estimated two to three percent decline in the amount of capital dedicated to writing reinsurance by rated markets, while convergence capital continued to grow, though at a slower rate compared to previous years.
At year-end, total capital dedicated to reinsurance was approximately $400 billion, unchanged from the previous year. Convergence capital, including catastrophe bonds, industry loss warranties, collateralised reinsurance and sidecars amounted to $68 billion, up 13 percent from year-end 2014.
The report also revealed that both the 144A cat bond and the private cat bond market continued to be active in 2015. The 144A cat bond market had 23 primary issuance 144A property and casualty (P&C) catastrophe bonds successfully completed, totalling $5.9 billion in 144 P&C issuance.
According to the report, Q4 saw insurance-linked security (ILS) pricing conditions held steady. It also revealed that pricing stabilisation in the ILS market was evident throughout 2015.
Guy Carpenter predicted that looking to 2016, the industry would see the pricing environment show signs of stabilisation across both the ILS and traditional markets.
The company also believes that the capital markets are in a strong position to provide multi-year capacity and expect that 2016 will bring new opportunities in the ILS space for public sector entities, corporates, insurers and reinsurers.
David Priebe, vice chairman of Guy Carpenter, commented: “The reinsurance market has been challenged by a persistent low interest rate environment, the continued inflow of new sources of capital, benefited from an extraordinarily long period of few major natural catastrophes, and record levels of merger and acquisition activity in 2015.”
"As a result, reinsurance and insurance companies are evolving their operating strategies to embrace this complex environment. We believe that alternative capital will be a consistent source of risk capital for reinsurance and insurance and corporates and we expect to see sustained high growth to continue in this sector.”
