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MONTE CARLO, Monaco — The ongoing surge of alternative capital and intense competition for cedents' business are contributing to a buyers' market for reinsurance and enabling policyholders to obtain terms and conditions for their programs not seen in the past three decades.
Reinsurers say rates likely will remain stable or decline slightly for most lines of business at the Jan. 1, 2015, re-new-als. Brokers say buyers can expect to negotiate favorable terms and conditions when their business renews.
“In 30 years, I have never seen such a buyers' market,” said Hugo Crawley, a partner at TigerRisk Partners (U.K.) Ltd. in London.
Low interest rates and a mostly benign period for claims, coupled with plentiful capacity from traditional and nontraditional sources, means that the sector remains challenging for reinsurers, said Torsten Jeworrek, CEO of reinsurance at Munich Reinsurance Co.
A prolonged, soft reinsurance market is likely, said David Priebe, vice chair of Guy Carpenter & Co. L.L.C. in New York.
“I'm not convinced that there will be (another) global hard market,” said Toby Esser, CEO of Cooper Gay Swett & Crawford Ltd., noting that rate hikes were localized and not prolonged after the devastating Japanese earthquake and tsunami of 2011.
They and other reinsurers and brokers who gathered earlier this month at the Rendez-Vous de Septembre reinsurance meeting in Monte Carlo, Monaco, said apart from aviation, which has been hit by a series of large losses, most lines of business continue to be competitively priced.
While buyers were focused on gaining rate reductions last year, there is likely to be a greater focus on terms and conditions during the upcoming renewals, experts say.
“Almost all lines of business have been affected — either directly or indirectly — by overcapacity,” said Alex Moczarski, president and CEO of Guy Carpenter.
Even for aviation business, which has seen several significant losses this year — including the $100 million hull loss for Malaysia Airlines Flight 370 — many rate increases will be “muted” by the abundance of capacity, he said.
However, hull war aviation coverage is hardening considerably on the primary and reinsurance sides, he said.
“Meaningful” rate increases are likely on some aviation reinsurance, possibly as much as 50%, said Robert Forster, joint active underwriter of Novae Group P.L.C.'s Lloyd's of London syndicate 2007.
What's more, capacity remains plentiful for U.S. property catastrophe business, said Jurgen Graber, a member of the executive board of Hannover Re Group with responsibility for property/casualty.
But “we do think this market has bottomed out and will be stable,” he said, in part because buyers have adequate protection.
Despite increased competition for property catastrophe reinsurance business, rates remain above historical lows, said Stephen Catlin, CEO of Hamilton, Bermuda-based Catlin Group Ltd.
“Property cat pricing was at an all-time high two years ago, but today is still better priced than it was four years ago, so it is not a disaster,” Mr. Catlin said.
Marine business may see a slight softening of rates at the renewals, because of a benign loss experience in the two years following the Costa Concordia and M.V. Rena disasters, said Sven Althoff, who sits on the board of management of Hannover Re Group and has responsibility for nonlife treaty reinsurance.
With plentiful capacity overall, reinsurers are more open to discussions about terms and conditions, said Bryon Ehrhart, CEO of Aon Benfield Americas in Chicago, a unit of Aon P.L.C.
While many conversations between buyer, broker and reinsurer have focused on price in the past two years, cedents now are more focused on the structure of their programs, the quality of their coverage, and the number and quality of their partners, Eric Andersen, CEO of Aon Benfield, said.
Some buyers are looking at their risks on a portfolio basis and when they do that they are able to secure more efficient deals, said James Vickers, chairman of Willis Re International in London.
For example, multiclass aggregate coverage — providing reinsurance coverage over a diverse book of business including property/casualty risks — often can be secured on a multiyear basis.
“They are technically quite demanding, not straightforward to underwrite or model or for buyers to understand, but buyers can see a dramatic reduction in their total costs of reinsurance,” Mr. Vickers said.
From a buyer's perspective, improved terms and conditions can be achieved in lines such as marine and casualty, Guy Carpenter's Mr. Moczarski said.
For example, many cedents have been able to buy broader terrorism coverage to match exposures in their books of business, or buy contingent business interruption coverage for both named and unnamed customers and suppliers., Guy Carpenter's Mr. Priebe said.
MONTE CARLO, Monaco — Investor appetite for insurance-linked securities and other alternative risk transfer options remains high despite lower prices for U.S. property catastrophe business.