A 'wave' of new capital entering the reinsurance market saw prices stagnate in April, with more aggressive pricing predicted at coming renewals, according to reinsurance brokers.
Pricing in April, which sees mainly Japanese and some US insurers renew their reinsurance arrangements, was flat overall, and slightly down on loss-free lines of business. The renewal was marked by significant amounts of new capital entering the market.
In particular, capital market investors are expanding the scope of their activities in the reinsurance sector through catastrophe bonds, collateralised reinsurers, sidecars and reinsurer operated third-party funds.
Aon Benfield, the world's largest reinsurance broker, also noted the positive effect of new capital for its insurer clients. "New capital flowing into the insurance-linked securities (ILS) and collateralised reinsurance market materially altered the course of April renewals for peak US perils and are expected to have a continuing material benefit for clients as we look forward to the June and July renewals", it said in its 1 April Reinsurance Market Outlook.
Many traditional reinsurers now see the flow of capital coming into the reinsurance market as a 'direct threat' to their business models, said Willis Re.
"While some reinsurers are considering how to respond, others are moving ahead with the development of third party capital management propositions to offer their own skills and platforms as fund managers", said Peter Hearn, Chairman of Willis Re.
This influx of new capital could also have a significant impact on post-event response from the global reinsurance market, said Mr Hearn. Although yet to be tested, third party capital has continued despite near-record catastrophe losses in 2011 and Superstorm Sandy in 2012.
The effect of the new capital flowing into the market has not yet been fully felt in the April renewal, but is likely to become more of a factor in future renewals. Early indications for the 1 June, 2013 Florida market renewals are for more aggressive pricing, Willis Re said in the report.
Overall global reinsurance premium volume is being squeezed by a combination of mergers and acquisitions among insurers and higher retentions by large primary carriers. At the same time, sluggish growth in mature markets is not yet being offset by growth in emerging markets, said Willis Re.
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