While upward pricing pressure presents opportunity for reinsurers at the upcoming 1.1 renewals, the sector is facing a moment of vulnerability as it addresses challenges in delivering adequate returns on capital while maintaining relevance to clients.

MC RT 2022

These were among the key takeaways from a roundtable of senior (re)insurance executives hosted by The Insurer at this year’s Rendez-Vous de Septembre, as the industry gathered in Monte Carlo for the first time since 2019. 

The discussion gathered executives from a mix of disciplines, with acknowledgement of challenges in the months ahead from the reinsurance brokers and excitement about the potential opportunity from the reinsurers. Here are five key takeaways:

Roundtable Participants

1. We are in a moment of vulnerability

While the industry’s balance sheet remains strong on paper, the investment turmoil of the first half of 2022 has led to a fall in reinsurance capital for the first time in several years.

And while unrealised investment impacts have largely been viewed as “accounting noise”, the roundtable heard how there was no room for complacency on the industry’s capital position.

“We are in a moment of vulnerability, even though on paper, the sector’s capital position appears reasonably sound,” explained David Flandro, head of analytics at Howden.


David Flandro, head of analytics, Howden

“If you look at the first-half markdowns of bond portfolios on everyone’s balance sheet and pursuant sector capital impairments – if we had an extremely large loss right now, like a 1:100 hurricane, the sector would likely encounter liquidity issues in certain areas – in spite of asset-liability matching,” he said.

Peter Smith, executive vice president and managing director at Liberty Mutual Reinsurance, said the reinsurance market had reached an inflection point.

“In many ways we are entering a perfect storm. We have challenges around relevance, our ability to problem solve for emerging risk, price setting for a rapidly evolving risk landscape whilst providing adequate returns for our capital,” he said.

“The insurance market has been price correcting since 2018 and this is continuing, retro much the same for the past five or six years,” Smith added.

“The reinsurance market is now playing catch-up while grappling with the new headwinds which the market is facing. There is a tremendous amount of challenge out there. 

“We have entered an environment of volatility, beyond what we have seen previously, and the market needs to react accordingly in order to serve our customers’ needs in the future.”

2. Casualty concerns remain despite market appetite for long-tail risks

A key strategic move taken by several reinsurers as they look to address the volatility of property cat exposures has been to lean into casualty – an approach that the participants noted was not without its own risks.

“We have some concerns around the level of market optimism for casualty,”  Smith continued.

While the underwriting environment and discipline has improved, the Liberty executive said he remained cautious on rate adequacy, ceding commissions and the level of return for capital providers at this point in the cycle. 


Peter Smith, executive vice president and managing director, Liberty-Mutual Re

“To what extent are these sustainable and sufficiently robust to carry us through the cycle?” he said.

Smith said it was also important to consider the extent to which current market dynamics and headwinds have been built into pricing and how these will play out in the future.

“Are we still playing catch-up and how are we thinking about future rate adequacy? It is one thing to lean into this market because of increased rate, but it is another to consider this in the context of rate adequacy.”

Neil Eckert, executive chairman at Conduit Re, questioned whether casualty pricing was fully reflecting current inflation trends.

“At what point do people look at the real inflation rate?” he said.


Neil Eckert, executive chairman, Conduit Re

“Many have priced their casualty accounts for the past five years on low inflation assumptions. But the difference between pricing for an assumption of – for example – 2 percent against a real inflation rate of 10 percent is a monstrous hole.”

However, Guy Carpenter chairman David Priebe said he believed reinsurers were being very disciplined around how they evaluate cedants. 

“There is capital that wants to participate in that market, and we’ve had 19 consecutive quarters of rate increases in casualty lines. Our analysis suggests It is a very favourable environment and insurers are continuing to drive rate,” he said.

3. Discussions are already happening on inflation

Inflation was never far from the top of the agenda in Monte Carlo and will be central to upcoming 1 January renewal talks.

Priebe said the first step is to sit down with companies and analyse on a portfolio-by-portfolio basis how they are addressing inflation in their pricing and insurance values – and how they have been doing this over the past several years.


David Priebe, chairman, Guy Carpenter

“We can then look at what that means for different excess-of-loss structures, where inflation can have a more amplified effect, and have an open conversation about it,” he said.

“What I’m feeling good about is those conversations are happening now – in September and October – so there will be greater clarity and hopefully we can come to a meeting of minds.”

Peter Wilkins, chief underwriting officer at QBE Re, noted a desire among cedants to control the narrative rather than reinsurers presuming what their inflation should be. 

“There is a lot of work to do, but I do see a consensus across the market of the challenges we need to address,” Wilkins said.


Peter Wilkins, chief underwriting officer, QBE Re

“The key factor is how we navigate those challenges. These challenges don’t end on 1 January – that’s just our immediate issue.”

Simon Hedley, CEO at Acrisure Re, added: “With renewal meetings, you need to hear from cedants what their strategy and thought processes are in addressing inflation at the primary level. 

“That’s the base case to make sure they are dealing with it in a sensible way.”

4. Reinsurers will be pushing hard in Europe

Hedley noted that certain major reinsurers “felt they didn’t quite get what they wanted” at 1 January 2022. 

“They will be targeting to make that up at 1.1 this time,” he said.

In Europe, 2022 has seen another year of elevated cat activity most notably in France, where May/June hail losses are now expected to total €6bn+.


Simon Hedley, CEO, Acrisure Re

Howden’s Flandro said 1 January 2022 was the first time in many years we had seen “serious backbone’’ from the Europeans, with Germany up significantly in the wake of Storm Berndt.

“The big question now is what sort of price action we will see in Europe at 1.1.23?” he said.

Guy Carpenter’s Priebe said differentiation was taking place on a cedant-by-cedant basis. 

“Risk-adjusted pricing will continue to move and reinsurers will be pushing hard in Europe,” he said.

“There will be increased limit demand from primary companies somewhere in the region of 10-15 percent. 

“Because of inflation and non-peak exposures pushing losses into these programs, there will also be pressure on attachments. 

“It may become a pure price decision, as it just doesn’t make sense to buy volatility protection at certain levels. The ability to purchase aggregate cover will remain extremely constrained.”

Isabelle Santenac, EY’s global insurance leader, said: “There is less and less appetite for volatility, whether from insurers or reinsurers. 

“There is a risk that as the industry reduces its core coverage, this in turn increases the protection gap.”

5. Retro capacity continues to be constrained

Priebe said the amount of available capacity in the retro market will also continue to be constrained, presenting a challenge in putting together aggregate protection for reinsurers. 

“The per occurrence market will continue to be available and strong,” he said.

“I expect you will see a continued expansion in the willingness of investors to back the cleaner, simpler structure of a 144A cat bond, so you will continue to see growth in that market.

“In terms of capacity coming in to support a sidecar structure or a newly formed collateralised reinsurance vehicle – discussions are taking place but as yet nothing has materialised.


Isabelle Santenac, global insurance leader, EY

“I hope that we can encourage investors to step in more to back reinsurers on a sidecar basis, but that may take more time.”

Acrisure’s Hedley noted that ILS capital was now generally fatigued. “It is not there to come in in a meaningful way as it has done before,” he said.

Flandro said the alternative market was not as attractive to investors in relative terms as it was a decade ago.

“Back then you had this amazing instrument where you could get a return in the 8, 9, 10 percent range on a one-year deal,” he said.

“It was presumed fully liquid and basically uncorrelated to other asset classes. This was in the wake of the financial crisis when yields were falling everywhere else due to quantitative easing.”