Guy Carpenter latest look at April renewals has found that “dynamic capital growth and ample reinsurance capacity” resulted in stable Asian and US renewals, with the rise of alternative capital changing market dynamics.
Guy Carp found that non-traditional capacity now makes up an estimated 14 percent of global property cat capacity, providing significant benefits to primary market players in terms of their options.
The report found that following the ructions associated with the Tohoku earthquake and Thai floods in 2011, Asian renewals this year softened slightly. In Japan the lack of cat losses in 2012 led to a modest decrease in pricing, although past loss experience limited any further downward movement. In Korea three typhoons drove rates upwards, particularly in loss affected areas. While in India, additional reinsurance capacity encouraged insurers to decrease reinsurance buying and negotiate better rates.
For those US property cat portfolios that renewed at April 1, reinsurance pricing was down in the single-digit range, with non-traditional capacity affecting the market and expected to have implications for June renewals.
Commenting on the renewals, David Flandro, global head of business intelligence at Guy Carpenter said: “The April 1 reinsurance renewal saw pricing stabilize in most regions as insurers benefited from an environment of dynamic capital growth. Much of this growth emanated from non-traditional sources, confirming that the convergence between traditional reinsurance and capital market solutions has now occurred.
Flandro spoke with Bermuda:Re about what rising levels of alternative capital mean for the Asian market and the sector in general.
How significant has growth of alternative sources of reinsurance capital been in Asia?
In relative terms, it is safe to say that alternative capacity did not grow as much or have as significant an impact on rates in the Asia-Pacific region as it has had in the US. However, if certain 'traditional' capacity is classified as alternative or convergence capacity - as it arguably should be - both the growth and the rate impact were higher over the last 12 months. This highlights the blurring line between what were previously termed 'traditional' and 'alternative' sources of capacity.
Is there appetite to write more Asian cat perils in the alternative mix?
The abundance of reinsurance capacity in the Asia-Pacific region means that traditional catastrophe excess-of-loss rates are often very competitive with comparable ILS cover, reducing the attractiveness of capital-market based solutions for many cedents. Additionally, ILS market expansion is limited not by interest, but by data quality and relative costs. There are nevertheless exceptions and ILS issuance in Asia was stable in 2012.
How can alternative capital such as ILS attract greater numbers of primary players, beyond the leading global insurers and risk pools?
As alluded to previously, data quality and cost are the two main barriers to entry where barriers to entry do exist. Some ILS have become more competitive as spreads have come down recently, and not necessarily only for the largest insurers or pools.
Don't forget, 'alternative' or convergence capital now accounts for $44 billion of limit of the $312 billion global property-catastrophe market, up from $34 billion in June last year. Capacity globally is manifestly growing and becoming more competitive.
Are alternative forms eroding the position of traditional reinsurers and is involvement in the alternative space now the only game in town?
Guy Carpenter, renewals, Asia, US, reinsurance, ILS