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Guy Carpenter sees continued reinsurance rate decline

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Rates for most classes of reinsurance fell at the Jan. 1 renewal, though the pace of declines slowed, particularly for U.S. property catastrophe business, according to a report published Wednesday by Guy Carpenter & Co. L.L.C.

“This trend was largely influenced by two prior years of steep declines and a larger increase in demand in property and certain other lines that began in 2015,” the brokerage said.

“Pricing also flattened in the insurance-linked securities space as protection buyers and sellers assessed adequate compensation for risk,” it added.

On average, “risk-adjusted pricing for U.S. property catastrophe decreased by 5% to 8%,” according to the report, compared with an average of 7% to 14% reductions a year previously.

While capacity for U.S. property catastrophe risk continued to be plentiful, there was a “wider range of responses to individual renewals as markets were somewhat more apt to decrease lines or decline participations as margins tightened further.”

In Europe, “reinsurance buyers generally took cash savings from reduced prices rather than expanding coverage, suggesting a priority of supporting profitability,” Nick Frankland, CEO of Europe, Middle East and Asia operations at Guy Carpenter, said in a statement.

Given that the pricing environment is showing signs of stabilization across ILS and traditional markets, “accessing multiyear capacity at pre-agreed static rates is a focus for many cedents” for 2016, the report said.

“A significant and growing number of property programs were placed at least partially on a multiyear basis at Jan. 1 and, notably, multiyear options are beginning to emerge in some casualty sectors, where they have not been available in the past,” the report said.

The amount of reinsurance capital in 2015 totaled about $400 billion, about the same as in 2014, according to the report.

So-called convergence capital — including catastrophe bonds, industry loss warranties, collateralized reinsurance and sidecars — made up about $68 billion of that total, an increase of 13% from the total at the end of 2014, the report said.