GC’s Vicky Carter: Strong UW record is key for attracting capital in disrupted reinsurance market

Capital providers are increasingly targeting executive teams and underwriters with strong track records amid a hard market that is expected to continue well into next year, according to Vicky Carter.

Speaking at the Reinsurance Insight conference in London last week, Carter, who serves as chairman of global capital solutions at Guy Carpenter, suggested reinsurance conditions will remain firm as the dynamics that picked up in the latter half of 2022 continue.

“It's a really exciting marketplace, and it's a marketplace that will remain tough. There's a lot of nuances coming through – people are very concerned about inflation and the macroeconomic climate, there's a whole host of headwinds.”

Carter added that while there is still capital being deployed across the sector, investors are becoming increasingly selective in their allocations.

“There is capital out there, but it's being a lot more discerning where it goes,” she explained. “It's following executive teams with a strong track record to demonstrate they know what they're doing into a new business.”

Carter noted that as the effects of the hard market on profitability are compounded by macroeconomic conditions and inflationary pressures, this has led to some “disgruntled” specialty line underwriters at large carriers who have kept their portfolios profitable even as the company overall has swung into the red.

“They're impacted on a personal basis, and you're seeing a lot of those individuals thinking, why am I sitting here working with this company and not getting rewarded for my very profitable business.

“Some highly talented underwriters have moved out of these big companies and onto MGA interfaces, which is a way that individuals can utilise some of these existing platforms which provide all the necessary processes and they can just concentrate on writing more business.”

These new start-ups led by highly experienced underwriters – usually in specialty lines – are among the most attractive opportunities to capital right now.

Carter – who is also Lloyd’s first female deputy chairman – pointed to Lloyd’s insurer Inigo 1301, formed from ex-Hiscox staff, as a “classic example” of underwriters looking for new opportunities to attract capital.

And even for large companies looking to de-leverage cat exposure and grow in specialty lines, portfolio diversification is not always easy.

A cost-efficient way to access that spread of business lies in finding an individual with the specialty knowledge of a particular region or line of business, Carter noted.

MGAs have potential in the current insurance market as the more recent platforms have demonstrated their efficiency, control and responsiveness – the antithesis of their peers in the 1980s, Carter noted, who “gave the pen away without any controls in place”.

“If you compare that to the highly efficient MGAs that are around today, there's complete control of all processes all the way through,” said Carter. “Many are digitalised, which has a huge reduction in costs, and they can deliver fantastic results – it's a great distribution play.”

She added that there is a danger, though, of MGAs falling into the pitfall along with the wider industry that believes underwriters should be rewarded on volume and that volume of business attracts capital, rather than underlying profit.

New capital structures

Carter also discussed during the panel the introduction of new capital structures in the London marketplace in recent years, including the London Bridge framework.

“London Bridge 2 is an interesting structure because it's basically a transformer. With the revision from one to two, it makes it a lot more simplistic for capital to come in through a single cell structure,” Carter explained.

“There are all kinds of benefits from a tax perspective, and the overall governance is now a lot simpler than it was before. Speaking to some of the investors who have come in recently from London Bridge 2, they feel it was the most efficient way of putting capital into the market. I think it will have a huge impact down the line.”

In addition, as previously revealed by The Insurer, Lloyd’s is currently examining the feasibility of developing a global policy to allow commercial clients to secure cross-border coverage from a single umbrella placement.

As a dovetail to this initiative, the Corporation is seeking a suitable pilot for third-party managing agent Asta’s captive syndicate model, which would provide another alternative capital structure.

“Lloyd's is continuing to look at transforming the whole capital structure,” said Carter. “There's work still to be done and some exciting things yet in the pipeline, but certainly it is trying to transform itself to be able to attract all different types of capital – not only just across a syndicate but also taking specific quota shares on specific lines of business, which will be more attractive to certain investors.”