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Guy Carpenter reinsurance price index rises 1.1% as capacity subdues rates

Reinsurance broker Guy Carpenter & Co. LLC's global catastrophe reinsurance rate-on-line index rose 1.1% at the Jan. 1, renewals as "plentiful" capacity partly offset the impact of the 2018 catastrophe losses.

From the perspective of reinsurers, this is a more positive view of pricing than that presented by fellow broker JLT Re, whose price index fell 1.2% for the Jan. 1 renewals. But Guy Carpenter added in its report on the renewals that catastrophe losses in 2018 — the fourth-largest loss year on record — had prompted questions about reinsurance pricing adequacy, underwriting strategy and the amount of capital available.

"While the impact on January 1 renewals overall was muted, this was a more challenging environment for some segments than it was a year ago," Guy Carpenter Vice Chairman David Priebe said in a statement. "The industry is dealing with questions of pricing adequacy and where and to what degree adjustments might be needed."

The broker said it was difficult to predict what would happen at subsequent 2019 renewal dates, in part because the situation with alternative capital — reinsurance backed by money from capital markets investors rather than traditional reinsurers — is unclear.

The continuing deterioration of 2017 catastrophe losses, coupled with the 2018 losses, led to an increasing amount of collateralized capital being either lost or restricted by trust agreements, Guy Carpenter said. It added that if this continues, or capital providers are more conservative, the amount of capacity may become constrained. But it also said there were also signs that capital may increase, as there are "several initiatives reportedly in progress to bring in new funds."

The report also found that although property price rises were confined to loss-affected areas, the effect of the property losses on reinsurers' overall profitability put pressure on companies to achieve or maintain profitable pricing levels in other lines of business. This resulted in price increases on casualty and specialty lines of business where there had been no losses.

Guy Carpenter is a subsidiary of global broking and consulting group Marsh & McLennan Cos. Inc.