GC: “Clear capacity constraints” in property cat but signs emerge of growing appetite

The reinsurance industry is gearing up for what is forecast to be a challenging renewal season amid a capacity crunch in property catastrophe and retro markets, but there are signs that some reinsurers are looking to grow their portfolios in the segment, according to Guy Carpenter’s executive team.

Speaking at a virtual press briefing before the start of the Monte Carlo Rendez-Vous this weekend, Dean Klisura, president and CEO of Guy Carpenter said the reinsurance industry was continuing to be impacted by a number of key challenges globally.

Klisura pointed to macroeconomic conditions – including increasing inflation and interest rates – the continued impact of the Russia-Ukraine war and the need to address systemic risks, including climate change and cyber as well as the new ramifications of ESG.

“We continue to see clear capacity constraints in the property cat market and retrocession markets across the global marketplace,” he explained.

“We continue to see clear capacity constraints in the property cat market and retrocession markets across the global marketplace”

Guy Carpenter president and CEO Dean Klisura

But despite these challenges, Klisura said that “demand for strategic advice and solutions has never been greater” for Guy Carpenter.

“As we manage our clients through this, in particular, providing advice and insights to our clients on the key emerging risks like wildfire, floods and systemic storms,” he said.

The firm reported that its US property cat rate-on-line index increased nearly 15 percent year-on-year, while the Asia Pacific index was up 9.5 percent.

Those shifts through mid-year in key geographies had a material impact on Guy Carpenter’s global property catastrophe rate-on-line index, which grew to an estimated increase of 15 percent, accelerating from the 1 January figure of around 11 percent.

Signs of increased appetite from some

Also speaking at the virtual event, Guy Carpenter’s global head of distribution Lara Mowery discussed the upcoming 1 January property cat reinsurance renewals and said inflation was expected to lead to “one of the broadest shifts the [property reinsurance] market has ever experienced in a single year”.

“Rising valuations on the underlying policies will increase the exposure to loss within existing property reinsurance structures, absent any other growth impacts. This means that for a reinsurer to renew their existing business, they must plan for this fundamental shift in exposure and be prepared to absorb additional expected losses across their portfolio,” Mowery noted.

She added that she expects to see increased demand as cedants revisit the effect of the rise in these values relative to their own risk tolerances.

“While in the past we may have seen the industry flex to accommodate 3 to 5 percent growth in a given year without restraint, the 2023 ask of property reinsurers will be multiples of that,” Mowery added.

But Mowery is optimistic that the reinsurance industry will provide the appropriate solutions to their clients despite some players in the market pulling back from providing catastrophe reinsurance capacity.

In support of this idea, she said that early discussions with reinsurers ahead of the 1 January 2023 renewals suggests some players are seeking growth across their property portfolios.

“Driving this momentum is the reality that the market is shifting based on evidence we’ve seen at mid-year. As market adjustments continue recognising current conditions, we would say that now is the time to lean into the market, and many are doing just that,” she added.

“While in the past we may have seen the industry flex to accommodate 3 to 5 percent growth in a given year without restraint, the 2023 ask of property reinsurers will be multiples of that”

Lara Mowery, global head of distribution at Guy Carpenter

Mowery cast a positive light on the fact that in a recent S&P report suggested half of 21 of the largest reinsurers have grown their natural catastrophe exposure in 2022, while others took a “more cautious” and “defensive” approach by reducing exposures across their cat-exposed books.

Those focusing on property reinsurance will focus on coverage and price adequacy by adapting their product offerings as lower layers and aggregates come under pressure.

“It may be more beneficial for a cedant wanting expanded limit to shift the amount of capital-intensive bottom end capacity to gain more coverage overall,” Mowery added.

Seat at the table

Also speaking to the media, Guy Carpenter’s chairman David Priebe said that the environment in which the reinsurance industry provides solutions is “truly changing”.

“I know we’ve been saying for years that our environment is changing. However, this year, it seems to ring more true than it has in decades,” Priebe said.

But while the industry is faced with challenges on multiple fronts, Priebe said that through “thoughtful, collective data driven strategies” the reinsurance market was well positioned to create solutions both in the near and the long term.

“We face broad global issues that we have not experienced before during our careers,” he said.

“How lucky is the (re)insurance industry to have a seat at the table to make an impact at such momentous times,” Priebe continued.

”We face broad global issues that we have not experienced before during our careers… How lucky is the (re)insurance industry to have a seat at the table to make an impact at such momentous times”

Guy Carpenter chairman David Priebe

Priebe said that the industry has “risen to many challenges before” however noted “we are now on new terrain”.

Amid these headwinds, Priebe noted the insurance market has been in a firming cycle for 19 consecutive quarters and said that this puts the industry “on stronger footing to confront emerging challenges”.

“Rolling rate increases on insurance coverages have improved earnings, risk profiles have been reshaped through disciplined pricing in underwriting, loss trends and loss picks are frequently being re-evaluated as the environment remains uncertain and ever changing,” he observed.