The continual drumbeat of alternative capital disruption, declining premiums and merger mania in the global catastrophe reinsurance market is being driven one simple scientific fact: there have been no significant insured catastrophes in over a half decade that will allow the industry to reload and hike prices.
In fact, 2014 insured losses were at their lowest level since 2009 and “well below the notable year of 2011,” according to Guy Carpenter Analytics 2014 Global Catastrophe Review released today. Beyond lower numbers for last year, significant insured losses in 2014 of $33 billion lagged both the ten-year ($59 billion) and five-year ($56 billion) moving averages, according to the report.
An earlier report by Aon Benfield explains the cause of reinsurers plight from the effect of lower losses from natural and man made disasters.
With the recent lack of major catastrophe losses, primary insurers have been able to retain more due to a stronger capital base and greater access to alternative markets. The capital boost is enabling these companies to retain more profitable business while ceding less profitable lines. Reinsurers have been broadening terms and conditions to combat the excess supply of capital responsible for creating the current “buyers’ market,” putting pressure on underwriting margins.
The lower insured losses continue despite some of the developed countries with the highest catastrophe insurance penetration continue to post higher loss numbers in 2014. The Guy Carpenter report said the Americas accounted for 57 percent of global losses in 2014, compared to 48 percent in 2013, 87 percent in 2012 and 26 percent in 2011.