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The greater competition could see reinsurers also increase their appetite for non-catastrophe risk, potentially allowing insurers to add new product features using reinsurer capacity, said Aon Benfield in its Reinsurance Market Outlook. "We continue to anticipate that insurers and reinsurers will find additional innovative ways to use the insurance-linked securities (ILS) and collateralised markets, including securitisations of complex commercial property, commercial liability and other new risks", the brokerage said.
The latest round of reinsurance renewal negotiations in June and July resulted in continued significant decreases in US property catastrophe programme pricing, according to Guy Carpenter, the reinsurance broking arm of Marsh & McLennan Cos. Terms and conditions have also been improving for reinsurance buyers as reinsurers try to be more accommodating, it said.
In addition to the growing influence of convergence capital, reinsurance rates are equally under pressure from capital gains driven by lower interest rates and higher than expected reserve releases, which boost industry capital, explained David Flandro, Global Head of Business Intelligence at Guy Carpenter.
As yet, the softening of reinsurance pricing in the US has not filtered down to primary casualty insurance, which has generally seen price increases in recent quarters. The trend seen at the July reinsurance renewal would have to continue into future renewals if favourable pricing is to be passed on to commercial insurance buyers, said Mr Flandro.
Outside the US, the influx of capital market capacity has had less effect, said Mr Flandro. Reinsurance rates in Europe and in international markets by and large did not see the price increases experienced in the US after Hurricane Katrina, so any swings in pricing would be much less pronounced, he said.
When reinsurers, brokers and primary insurers meet in Monte Carlo in September to start reinsurance discussions ahead of the big January renewal, negotiations will take place in an environment in which most property lines are under pressure, noted Mr Flandro.
In Europe, motor reinsurance remained stable while employers and public liability rates in the UK continued to soften at 1 July. Reinsurance for professional lines remained competitive in all sectors, with the possible exception of larger financial institutions.