9 April 2014News

Fitch: April heralds tough mid-year renewal

Rates declined more steeply in April than many anticipated, with the US mid-year renewals anticipated to heap further pressure on the property catastrophe reinsurance market.

That is the word from Fitch in a recent report on the April renewals, which found that the Asian market had seen declines of 17.5 percent on unaffected Japanese earthquake portfolios and a 15 percent fall on unaffected wind and flood lines.

US and European property catastrophe reinsurance pricing at April 1 was down 10 to 20 percent for loss free accounts, in line with declines experienced in January.

Low catastrophe losses and rising levels of both traditional and convergence capital placed considerable downward pressure on April pricing, Fitch found, resulting in more generous policy terms and conditions and rate on line.

There was some good news however, with smaller specialist insurers buying more reinsurance coverage, Fitch found. The rise of specialist players in US markets such as Florida may bode well for reinsurance buying, even in the face of significant headwinds.

Looking ahead to the US mid-year renewals, still further pressure is however likely. The preponderance of US risks in the convergence space suggests that the pressure from alternative capital will be marked. Fitch believes that competition for signings will likely be fierce.

US property catastrophe risk, with its granularity of data and models, has proved an attractive option for alternative capital and there has been anecdotal evidence that some traditional players have been forced to draw back from what has traditionally been a key focus for the Bermuda market.

And barring an event between now and mid-year—unlikely considering the US hurricane season will not kick off until later in the year—it seems unlikely that there will be any sort of market turn.

The US has not seen a major hurricane landfall since Wilma 2005. Superstorm Sandy did prove a lesson, but reinsurance losses from that event were not significant enough to prompt any market change.

Last year markets such as Florida market saw significant price declines and it may yet experience still further pressure, as low cost alternative capital moves further into the space. Fitch is predicting double-digit declines. Bermuda players will be bracing themselves for a tough mid-year.

Fitch did however indicate that US property catastrophe pricing still remains attractive when compared with the global rate environment and that reinsurers can expect to benefit from increased interest from local specialist insurers. Fitch predicts that as a result of this new interest reinsurance spend will remain steady.

For Bermuda players with traditional and convergence platforms there may be an opportunity to maintain or broaden their footprint, but it is apparent that conditions will likely create a buyer’s market at the mid-year.