There hasn’t yet been a post-Covid capital raise big enough to dampen the rate increases buyers will face at the key 1 January renewal, according to Aon’s Reinsurance Solutions CEO Andy Marcell.

Andrew Marcell – Aon

Speaking to The Insurer for the latest in our The Best Policy podcast series, the executive said that as a broker representing buyers he welcomed new capital to make the market more competitive and help his firm get the best price for its clients.

“However, I think it’s worth pointing out that some of the capital that’s come in is actually with existing players – maybe in part in response to uncertainty around producing third party capital – so they can produce capital for their own balance sheets and put that to work,” he observed.

That additional capital will allow those reinsurers to maintain market share or take advantage of a market that is improving.

“And I think you’ll see that some of the fantastic companies that have raised that capital are not seeking to drive down prices; they’re seeking to position themselves with the clients they want to position themselves with in a more robust way,” Marcell suggested.

Confirmed capital raises by reinsurers writing cat in the Covid-19 aftermath include $1.05bn by RenaissanceRe, the blue-chip Bermudian that writes on its own balance sheet as well as a host of managed vehicles and joint ventures.

The company has disclosed successful 2020 capital injections into its third-party vehicles but has also said that it is likely to pivot to be more of a writer of retro on its own balance sheet in 2021.

“There hasn’t yet been a new capital raise big enough to dampen the rate rises in cat our clients are under pressure to respond to”

RenRe CEO Kevin O’Donnell has also stated the reinsurer will deploy its capital to grow into an improving market and retain more risk, as well as providing certainty of execution to buyers to be a “first call market”, gaining preferential access to private deals.

Other $500mn+ capital raises in Bermuda include at Fidelis, with the Richard Brindle-led carrier raising a total of $800mn in 2020, while PartnerRe has secured a Eur750mn investment from French mutual Covéa.

Meanwhile, Ark and Convex are existing carriers currently in the process of raising significant additional funds.

Although he wouldn’t comment on specific companies, Marcell told The Insurer that despite the actions, “there hasn’t yet been a new capital raise big enough to dampen the rate rises in cat our clients are under pressure to respond to”.

Retro market shift

The executive also talked about the potential impact on property cat reinsurance from the tight retro market, particularly in segments where there is trapped capital at collateralised writers.

He highlighted excess-of-loss retro – a segment of the market with an estimated $20bn of limit across occurrence and aggregate – where there is around $4bn in trapped capital and a very limited number of markets providing aggregate capacity.

“If you’re a buyer of these products, you have less flexibility, say for example if you’re in Lloyd’s and you need to buy the cover to meet the mitigation metrics the Society operates under. But if you’re a large rated global reinsurance company, I don’t think you’re under the same amount of pressure.

“You could reduce your writings, but no one is talking about reducing their writings, they’re actually all talking the opposite, about increasing their positions,” he noted.

Marcell said that buyers of retro would instead turn to the ILW or cat bond market in a more meaningful way, and work with their brokers to form partnerships with potential quota share counterparties.

“You’re going to see a shift in the whole ball of wax that people call the retro market and it’s going to become a lot more segmented, and the way people utilise capital in that space will be different.”