Growing reinsurance capital is welcome news for buyers

New capital flowing into the reinsurance market is increasing competition for peak zone catastrophe cover, which should mean more affordable insurance capacity is made available to corporate buyers.

Thai floods in 2011 affected property loss and business continuity

Reinsurance renewals in January, and more recently in April, saw last year’s trend of increasing prices slow and even reverse. According to the big three reinsurance brokers, the April renewal saw rates for Japanese catastrophe exposures flatten out, while for US property catastrophe risks prices fell. More aggressive price competition is now expected at the June and July renewals, which mainly focus on US contracts ahead of the summer hurricane season.

Renewals in April suggest the trend towards price increases in the global catastrophe reinsurance market has run out of steam, according to James Vickers, Chairman, Willis Re International.

Property catastrophe reinsurance rates had increased in 2012 after the large losses of 2011—a near record year that included earthquakes in Japan and New Zealand, as well as flooding in Thailand and Australia. However, one year on and the situation looks very different, said Vickers. Despite Superstorm Sandy and the US drought, losses in 2012 were modest and most reinsurers put in a good performance and were able to grow surplus capital, he said.

All three of the big reinsurance brokers—Aon Benfield, Guy Carpenter and Willis Re—said that inflows of capital and competition from capital markets were affecting renewals. “The industry had a strong year and reinsurers reported sparkling results. But there is growing interest in the sector from capital markets at a time when underlying demand for reinsurance is muted and as some large insurers look to increase retentions,” said Vickers.

“Clearly the reinsurance market is under pressure. It is a good time for buyers and I would expect to see reductions at the renewals in June and July—the question is who will get reductions and by how much,” said Vickers.