Guy Carpenter Says Reinsurance Prices Squeezed by Oversupply

Jul 08, 2014 5:15 am ET

July 8 (Bloomberg) -- Reinsurance prices declined on policies renewed for July 1 amid low losses and as record levels of catastrophe bonds drove an oversupply of capital, according to Guy Carpenter & Co. LLC.

There were “price decreases across virtually all geographies and lines of business, many in the double-digit range,” the reinsurance broker of Marsh & McLennan Cos. said in a statement today.

The rates reinsurers charge customers are under pressure as low interest rates push investors, such as pension funds searching for above-average returns, into their market. Below- average catastrophe claims have also left the industry, which shoulders risks for primary insurers in return for a share of the premiums, with abundant funds.

About $5.7 billion of catastrophe bonds were issued in the first half of the year, the highest for the period, the New York-based company said. This year already is the fourth-largest in terms of the securities issued, Guy Carpenter said.

Catastrophe bonds enable insurers pay for cover against events like hurricanes or earthquakes. Investors get above- market yields for taking the risk that their principal could be wiped out by a large enough disaster.

“With an abundance of alternative capital, catastrophe bond pricing continues to decline,” David Priebe, vice chairman of Guy Carpenter, said in the statement. “Alternative capital is also extending its market impact through increased interest in non-catastrophe lines of business.”

In January, usually the most important month to renew annual property and casualty treaties, prices declined 11 percent and also fell for most other types of coverage. Prices continued to drop for the April 1 renewals.