Guy Carpenter: Rate cycle has likely peaked in Asia but retentions still rising

Reinsurance capacity is rebounding in Asia but remains more constrained at lower layers, according to Guy Carpenter’s Asia Pacific CEO Tony Gallagher.

Gallagher told The Insurer more than 30 percent of Guy Carpenter’s clients in the region have seen their retentions increase at renewals so far this year.

According to the reinsurance broker’s Asia Pacific Retention Index, increases varied widely but averaged at around 60 percent as of July this year.

Guy Carpenter’s Asia Pacific Property Catastrophe Rate on Line (RoL) Index, including mid-year adjustments, increased by 16 percent year on year as of July. This increase was below the 2012 peak with the change in RoL tempered by the broad-based increases in retentions. By comparison, the US index was up 35 percent.

Gallagher said capacity utilisation in the region, a metric developed by Guy Carpenter which measures excess capacity increased from 108 percent in January to around 137 percent in July.

He said this was an indication that reinsurers in the region have now recapitalised.

“Assuming a normal catastrophe year in 2023, we expect that the capacity utilisation will continue to increase, with more new, dedicated reinsurance capital coming in the second half of the year,” he said.

“We have observed an increase in supply, and we expect that the rate cycle has peaked,” he said. “However, there will be exceptions for certain companies and geographies where loss activities have continued in 2023.”

For the majority, Gallagher said the market was likely to be stable at 1 January 2024, although underperforming portfolios or markets could see adjustments.

Recent renewals in the region have seen capacity constraints at lower layers as reinsurers push for higher retentions.

“Aggregate covers are currently limited and expensive. Overall, the demand has been stable, considering what we have seen so far in 2023, but supply has been short. Therefore, pricing is expected to remain firm for lower layers,” he said.