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Guy Carpenter: Global catastrophe reinsurance prices rose 5% at Jan. 1

Guy Carpenter & Co. LLC's global property-catastrophe rate on line index rose by 5% at the Jan. 1, 2020, renewals, based on preliminary calculations, the company said.

Roughly 50% of the world's reinsurance renews on Jan. 1 of each year, making it a key date for the industry.

Rate on line, or ROL, is the price of a reinsurance contract expressed as a percentage of the sums reinsured. In keeping with fellow reinsurance broker Willis Re Inc.'s analysis of the Jan. 1 renewals, Guy Carpenter said price rises were "significant in certain cases" for property-catastrophe reinsurance programs in peak catastrophe zones where there had been claims, but loss-free business in other geographies "trended flat to down."

The broker said the increase in its ROL index reflected the weighting of peak-zone reinsurance up for renewal Jan. 1.

Like Willis Re, Guy Carpenter said it had witnessed an "asymmetrical market" at the Jan. 1, 2020, renewals, shaped by "deteriorating loss experience, a lack of new capital inflows and increasingly challenged environments in the primary insurance and retrocession markets."

The broker noted that although the supply of reinsurance was mostly sufficient to meet growing demand, renewal outcomes "varied significantly" by geography, line of business and ceding company.

Classes of business where underlying performance had remained positive often renewed at expiring prices or achieved modest decreases in some cases, while those in tougher operating conditions faced price corrections, "some significant," Guy Carpenter said. The most pronounced increases were confined to specific regions or markets, typically with successive years of losses, deterioration in performance and/or changing perceptions of risk, it added.

Just as Willis Re highlighted liability as having experienced pronounced pricing pressure Jan. 1, Guy Carpenter said reinsurers realigned their capital deployment in a select number of U.S. liability classes in response to higher loss ratios and an "increasingly difficult" legal environment.

The broker also described a "challenged" environment in the retrocession market, which provides cover for reinsurers, with trapped capital, a lack of new capital and continued redemptions from third-party capital providers. Trapped capital refers to money that has not yet been returned to investors or used to pay claims because the final claims bill from an event is still to be determined.