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Reinsurance price declines moderated at 1/1 2017 renewals: Guy Carpenter

5th January 2017 - Author: Luke Gallin

Reinsurance price declines moderated at the key January 1st 2017 renewals when compared with the previous three renewal seasons, across the majority of business lines and geographies, according to reinsurance broker Guy Carpenter.

The global reinsurance sector remains under significant pressure from a series of headwinds, underlined by a continuation of the softened market environment and further, albeit moderated price declines at the recent 1/1 2017 renewal period.

Peter Hearn, Chief Executive Officer (CEO) of Guy Carpenter, said; “Although current renewals indicate that the decline in reinsurance pricing is slowing, this moderation was not surprising and the more interesting development may be the continued evolution of coverage and solutions to meet changing client needs.”

According to the Guy Carpenter Global Property Catastrophe Rate-On-Line index, property catastrophe pricing fell by 3.7% at the January 1st 2017 renewal season, compared with almost 9% a year earlier.

“An abundance of available capital and improving analytics tools are essential components to create support for notable advances,” added Hearn.

The reinsurance brokerage explains that following a fairly static 2015, overall reinsurance capital increased by 5% from January 1st, 2016 to January 1st, 2017, according to analysis by Guy Carpenter and international financial services ratings agency, A.M. Best.

A number of areas experienced heightened loss activity during 2016, which, Guy Carpenter says only had a localised impact on pricing metrics, while “capacity remained plentiful.”

In fact, according to recent analysis from reinsurance giant Munich Re, 2016 witnessed $50 billion of global insured catastrophe losses, a four-year high and more than 50% above that seen in the previous year.

But despite the increased losses, an abundance of capital from both alternative and traditional reinsurance sources meant that the $50 billion insured loss figure contributed to reduced profits in the marketplace, but wasn’t nearly enough to turn pricing in the sector.

With capacity levels so high and price points remaining “very attractive,” Guy Carpenter underlines that product innovation and coverage customisation remain a key focus of the industry.

“Continued exploration in the reinsurance space paved the way for many new advances, including expansion of solutions for historically difficult and under (re)insured risks such as flood,” explains Guy Carpenter.

Furthermore, the reinsurance broker expects market expansion and “positive market evolution” to come from increasingly complex sources, such as climate change, cyberspace, and the rise of nascent technologies.

“An innovative mindset is the key to success in today’s marketplace as the increasing complexity of risk brings new levels of uncertainty,” said Hearn.

With returns low, capacity high and competition intense, reinsurers remain under significant pressure in a very challenging operating environment. The need for efficiency and discipline is apparent, and as noted by Guy Carpenter, an innovative approach to emerging and complex exposures could be what sets companies apart during the testing times, which are expected to persist throughout 2017, absent a truly market turning event.

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