Guy Carp: Wide-spread price reductions set to continue


Guy Carp: Wide-spread price reductions set to continue

Marc Scott-Parkin /

Market pressures at the July 1st renewals continued to drive price decreases across virtually all geographies and lines of business, many in the double digit range.

This is according to Guy Carpenter’s latest report, which also found that as loss activity remained minimal, reinsurers added to surplus capacity and additional capital continued to come into the market via alternative sources.

“While the impact on property renewals, especially in the US, has been well documented, a wide variety of lines including marine, aviation, casualty, workers compensation and healthcare experienced improved terms and abundant capacity,” says Lara Mowery, managing director and head of global property specialty for Guy Carpenter. “As a result, we have seen continued discussions around the expansion of terms and flexibility in adapting solutions to provide more client-specific tailored coverage that extend well beyond property.”

According to the report, the growth of alternative capital and expansion of its range of offerings continues to impact the marketplace in a meaningful way. Catastrophe bond issuance was extremely strong through the first half of 2014, with a record-setting half year issuance of $5.7 billion of 144A property cat bonds. Total risk capital outstanding now sits at an all-time high of $20.8 billion (excluding private placements).

In actual fact, even with no further activity for the remainder of the year, 2014 would still register as the fourth largest year in terms of new issuance.

“With an abundance of alternative capital, catastrophe bond pricing continues to decline. In addition, greater flexibility in the market has facilitated first-time achievements in 2014, including a European windstorm bond utilizing an indemnity based trigger and the first ever Japanese yen denominated bond,” says David Priebe, vice chairman of Guy Carpenter. “Alternative capital is also extending its market impact through increased interest in non-catastrophe lines of business, including entities specifically focused on writing more stable business but with a more aggressive investment strategy.”

US Property

Over the last three prior years, fluctuating conditions between January 1st and July 1st resulted in mid-year market movement.  In 2014, renewal behaviour returned to a more historical norm as the market remained fairly consistent through the first six months of the year. Price decreases averaged in the mid-to-high teens and changes in coverage, more diverse product offerings and an increase in multi-year options enabled companies to better tailor their coverage to meet their risk management needs.

Global property highlights

The report found that rates for Latin America and Caribbean property catastrophe excess of loss cover declined at the July 1st, 2014 renewal. However, the fall in pricing was somewhat less pronounced than in other regions. In China, July 1st renewals continued to be a significant marker for catastrophe programs with reinsurers generally offering quotes at levels that were expected. In Australia/New Zealand July 1st renewals continued to show significant decline in rates due to oversupply of capacity following a benign year for catastrophe losses – despite some uptick in the ultimate losses from the 2010/2011 New Zealand earthquakes.

Catastrophe bonds & capital markets

The report discovered that catastrophe bond price decreases and oversubscription of placements continued in 2014. As a result, a number of deals were upsized and priced significantly below their initial range during the first six months of the year, leading to a record setting pace in issuance. However, price adjustments moderated somewhat towards the end of the second quarter, especially for Florida hurricane exposed placements, although the majority of deals in this period still priced comfortably within their initial guidance.

Despite the aggressive price decreases of the past year, there are signs that market participants are continuing to apply consistent underwriting standards. While there is undoubtedly an abundance of investor capacity, it still appears to be acting in a reasonably disciplined manner. 

US Casualty

The report found that rates and terms continued to soften significantly on post-January 1st, 2014 quota share reinsurance program renewals. This trend was driven by reinsurers’ desire to diversify their writings as a result of the continuing reduction in property catastrophe premiums.  In addition, loss ratios improved on the underlying business as a consequence of rate increases and reserve releases. Casualty clash pricing was flat at July 1st, 2014 as programs with losses experienced flat to increased rates and there was no notable increase in available capacity for the sector. 

International Casualty 

June/July renewals for UK and international programs in general liability, employer’s liability, commercial directors and officer’s liability and professional liability continued to experience rate reductions, according to the report. One minor exception was financial institutions where historic loss experience and the inherent volatility within the class meant it remained the one long-tail sector with less overall capacity. However, even financial institutions experienced rate reductions in both the primary and reinsurance sectors in some instances.


The lack of US legislative activity in 2013 and through the first quarter of 2014 to renew the TRIPRA was a major concern for carriers, particularly for insurers writing workers compensation cover as the peril cannot be excluded from the standard policy. Although the uncertainty surrounding a successful renewal of TRIPRA has been tempered by recent congressional action, the final terms of TRIPRA’s replacement and timing of enactment may still be an issue for some insurers.


The report found that the US healthcare environment saw mid-year pricing trending down for programs with strong performance.  Innovation, creativity and flexibility were watchwords as bespoke solutions were explored and implemented for all types of cedents.  With the expansion of healthcare access and availability intended by the Patient Protection and Affordable Care Act (PPACA), insurers are looking to capitalize on opportunities for growth with a continued interest in proactive capital management. While there continues to be an abundance of reinsurance capacity and interest, changes in healthcare claims are beginning to have an impact on the market.

Group life, disability & accident catastrophe

Competition and capacity were adequate for group life and disability lines, affecting market dynamics and somewhat muting the impact of cedents’ loss experience. Pricing remained disciplined at July 1st, 2014 and many programs renewed with favourable terms. Additionally, adequate capital and significant rate reductions in property and casualty lines made accident risk a very attractive line to write. Minimum premiums in this segment were tested including those for nuclear, biological, chemical and radiological where cedents exhibited favourable risk characteristics.

Guy Carpenter, mid-year renewals, report, loss activity

Bermuda Re