Rates low despite $20bn cat losses in 2013

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Reinsurance rates on line for the first six months of this year have been suppressed owing to an influx of capital from third party investors, according to Guy Carpenter.

The reinsurance broker said that this trend happened in spite of catastrophe losses reaching around $20bn by the 1 July renewals.

In a statement, Guy Carpenter added that strong catastrophe bond, sidecar and collateralised reinsurance activity throughout the year has for the first time pushed pricing in the capital markets to break away from levels set by the traditional market.

According to the report, convergence capital now accounts for an estimated $45bn of the global property catastrophe limit, or 14% of the market.

The amount of excess capital in the market helped reduce the impact of catastrophe losses coming from severe US tornado and floods in Europe, India and Canada during the second quarter of 2013.

Guy Carpenter global head of business intelligence David Flandro said: “At 1 July, we saw continued significant decreases in US property catastrophe program pricing. Although the impact of convergence was less dramatic elsewhere, general downward pressure on rates was observed for property business in several other regions and across some casualty lines.”

“Without further significant catastrophe losses in the remainder of 2013, we expect that this downward pricing trend will likely continue through the remainder of the year and into the 1 January 2014 renewals.”

Guy Carpenter global head of property specialty Lara Mowery said: “For the third consecutive year, we’ve seen a significant shift in market conditions during the second half of the renewal season. This behavior is contrary to the market’s historical precedent, as the factors that typically impact the mid-year renewals are normally driven by those already present in January.

“As seen in this year’s July renewals, the excess capital in the market, and more importantly, the behavior of that capital, has encouraged a dramatic shift that triggered downward pricing in the traditional market in order to remain competitive.”