Pricing update – third quarter 2015

Few reinsurance deals are negotiated in the third quarter, so pricing data is sparse. However, the data from the cat bond and ILW markets indicates little change over the last 12 months.

June and July saw some resistance to further rate declines and even rate increases in some products. Explanations for this resistance included extra demand for Floridian reinsurance and funds pushing back on further rate reductions. Data for the third quarter indicates that pricing for cat bonds and ILWs is close to flat over a 12-month period. Meanwhile, insurance-linked funds are on track to have a tougher year than 2015.

Many parts of the market will not trade until January 1. That renewal season will give observers a clearer idea of the market’s direction.

The latest data from Guy Carpenter indicates that the mid-year rise in wind ILW rates has mostly reversed and that prices are close to the level established 12 months ago. Users who have registered (for free) can view the complete, interactive version of this chart here.

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Cat bonds
Similarly, the risk-adjusted cat bond metrics from RMS indicate that the expected cat bond returns available on the secondary market are similar to those 12 (and 24) months ago. The increasing yields over the summer indicate a possible overreaction to hurricane season. Users who have registered (for free) can see the charts for other perils here.

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This chart from Lane Financial provides a long-term view of catastrophe bond pricing multiples and shows that, by this metric, the current market is at an all-time low (though the reduction has been small in the last 12 months).
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This data from Eurekahedge looks at the nine-month returns from 34 funds (the September 2015 data uses fund returns that were available on October 11). Ignoring the heavy-loss years of 2008 and 2011, the chart indicates steady declines over the last eight years.

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Posted: Monday, October 12th, 2015