Guy Carpenter says market has stabilized in 2007 after tumultuous mid-decade catastrophes
Global catastrophe reinsurance rates have dropped by 6% in 2007, versus an increase of 32% in 2006, according to new research.
The research finds the catastrophe reinsurance market has stabilised following a tumultuous renewal cycle in 2006.
David Spiller, chief executive officer of Guy Carpenter, said: “2007 will be remembered as the year the catastrophe reinsurance industry righted itself, following record-setting losses in 2005 and soaring rates in 2006. The industry has absorbed the changes brought about by the mid-decade catastrophes, as well as the resultant pressures from rating agencies, regulators and modeling firms.”
Spiller added: “One of the primary reasons for this moderating trend has been the industry’s increasing embrace of the capital markets to transfer risk, whether in the form of catastrophe bonds, new start-ups or sidecars. Capital markets have become an integral part of the reinsurance business and are playing a key role in helping to reduce market volatility.”
According to the report, following the record years of 2004 and 2005, total insured/reinsured losses in 2006 reached US$15.9bn (£7.8bn), down significantly from US$83bn in 2005.
The findings also show that new capital has been entering the industry at a record rate. The catastrophe bond market witnessed a record level of issuance in 2006, with 20 transactions totaling USD4.69bn in risk capital transferred to the capital markets, doubling the previous record total of 10 transactions in 2005.
Tim Gardner, global leader of Guy Carpenter’s property specialty practice, commented: “If the central theme of global catastrophe reinsurance markets in 2006 was increased demand, then the theme of 2007 is increased supply,” said “The demand for additional capital that we saw in last year’s report has been met by a distinct upward shift in catastrophe bond issuance and the launch of new companies focused on the property catastrophe business. We are now starting to see these new ventures level out as the market returns to the downward phase of its cycle. Barring major disasters, we would expect to see further price declines at January 2008 renewals.”
The research was published by Guy Carpenter and covers more than 90% of the worldwide market for catastrophe reinsurance.
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