The Insurer’s 2023 Monte Carlo Rendez-Vous postcard…

With the annual Rendez-Vous now over for another year, The Insurer brings you our key takeaways from the reinsurance event…

1. Reinsurer resolve on hard market shows no sign of abating

As expected, reinsurers are in no rush to concede their hard-earned gains at recent renewals and the message around their resolve ahead of 1.1 was clear.

Swiss Re set the scene with the publication of its latest sigma report on Saturday, predicting further rate hardening and constraints on capacity throughout 2024.

This message was echoed by its rivals over the coming days. Hannover Re CEO Jean-Jacques Henchoz said the improvements achieved in both pricing and conditions during this year’s renewals were “not sufficient in view of the still challenging risk situation”, adding that society at large was “in denial about the price of risk”.

Jean-Paul Conoscente, CEO of Scor P&C, said rate increases are required for both primary and reinsurance carriers.

“The situation we’ve had for the past five years to 2023 was not sustainable for reinsurance,” he said. “The only solution is for insureds to pay the appropriate price for the risk.”

But while much of the public commentary was around a renewed push for more rate, the event also saw discussions around where reinsurers were most determined to hold on to previous gains – rate, terms and conditions, or attachment points. Indeed, if anything the latter two appear more significant in the eyes of reinsurers, reinforcing the need for the alternative solutions mentioned.

Brokers – as one might imagine – were less committed on predictions for further rate. Indeed, Aon’s CEO of Risk Capital Andy Marcell suggested there could even be some modest downward pressure on the most attractive layers. One thing that does appear certain is that, while the upcoming renewals won’t necessarily be early, they will certainly be much more orderly than last year and rate changes will be more modest…

2. Innovative solutions hold key to challenge at lower end of programs

Over the course of this week’s discussions it became clear that a focus of upcoming renewal discussions will be around the development of solutions to provide cover for frequency losses.

Guy Carpenter’s chairman of global capital solutions, international Vicky Carter predicted more interest in developing innovative solutions at the lower end of programs, whether in the form of structured reinsurance or spread loss covers.

Sources revealed to this publication several options that were being discussed, including net quota shares, variants of drop-down coverage that can lower the retention during the year, and a range of aggregate solutions structured to better align the interests between buyer and seller than has been seen in recent years on sideways covers.

In addition, discussions are also ramping up around solutions to optimise balance sheets, including freeing up capital through reserve transactions such as loss portfolio transfers.

Howden Tiger executive chairman Rod Fox said it was critical reinsurance brokers can deliver innovative solutions at a time when the traditional market is retrenching from lower layers and increasingly offering a “one-size-fits-all” product

3. Marginal capital expected to enter – but limited impact

The hard market that followed Hurricane Ian failed to trigger the wave of new start-ups that typically follows major loss events, amid fragile investor appetite for the sector.

Over the past few days speculation has intensified around several start-up initiatives that may be in place for 2024, some potentially up and running in time for 1 January.

The Insurer revealed former Hannover Re CEO Wilhelm Zeller has teamed up with ex-Axis Re CEO Steve Arora to work on a potential $1bn Zurich-based reinsurer called Alpine Re.

Another septuagenarian industry figure, Brian Duperreault (AIG/MMC) has emerged as the figurehead of a mooted reinsurance-focused start-up from Mereo Advisors, while sources suggest Tats Hoshina’s long-term project Fathom may be finally gaining traction in fundraising.

In addition to the above, the IPO market is gaining traction (Hamilton and Aspen) while a number of ILS funds expect to expand and there are three proposals involving Lloyd’s listed investment funds.

Despite all these, the consensus was that the capital inflows will be modest/marginal and make no real impact to the demand/supply equilibrium. Not least – as reinsurers would say – because this is a hard market fuelled by inadequate returns as much as shortage of capacity.

4. US casualty concerns

Several commentators voiced concerns over the health of US casualty lines during the event. During an interview with The Insurer TV, Arch Re chairman and CEO Maamoun Rajeh questioned whether the industry had built enough of a reserve buffer for long-tail claims.

Swiss Re had voiced its concerns on US casually in the run-up to the event, having posted a combined ratio of 119 percent for the class in Q2 on the back of reserve strengthening.

At the time, CFO John Dacey said US liability, in particular, remains problematic.

Scor’s Conoscente highlighted US casualty as one area where price increases were necessary as reinsurers were not being adequately compensated for the risks they were taking on.

Despite this, Aon’s Marcell said he expected casualty renewals to be relatively stable.

“I am not sure that any reinsurer concerns have been evidenced in the financial performance of insurance companies over the past eight months. So I would expect the market to be reasonably stable, aside from D&O coverage, which is a much more challenging marketplace because of the precipitous drop in rates,” he said.

5. ILS investor appetite

A clear theme of 2023 to date in the ILS market has been the very significant level of cat bond issuance, with a new $10bn record set for the first half of the year.

The availability – and price – of cat bond capacity has been a welcome relief for insurers in a generational hard traditional property cat reinsurance market.

As Howden Tiger’s Philipp Kusche told The Insurer TV during the Rendez-Vous: “We are seeing more sponsors explore the cat bond market, and the cat bond product is a true complement to the traditional reinsurance placement. That's something which really fuelled the cat bond market issuance from existing and also new sponsors.”

Investor appetite has been strong, in part because cat bonds have largely operated as expected post loss, proving their mettle and continuing to offer a diversifying asset class.

However, at Monte Carlo this year there was also talk of a thawing of investor caution around assuming cat risk through other ILS products, including collateralised reinsurance.

Multiple sources spoken to by this publication highlighted a number of fundraising successes at ILS funds, as well as third-party capital initiatives at traditional reinsurers.

There were questions about how much of any funds raised will be allocated to cat bond strategies – still seemingly the most favoured by investors – versus collateralised reinsurance or retro. But a few ILS managers indicated they expect to be able to deploy moderately more at the upcoming renewal – both higher up on placements and in at least one case low down.

Retro looks to be a less likely area of deployment for any incremental funds at this stage, given the relative attractiveness of cat reinsurance. But even there the expectation is of a much more stable market for buyers than has been seen in the last few years.

6. Annual insured losses = $100bn+

Expect the industry’s average annual nat cat loss bill to now be $100bn or more – indeed Verisk estimated at the Rendez-Vous that it may now be $133bn.

7. Parametric triggers/Morocco quake

The terrible Morocco earthquake triggered the EV CAT $275mn xs $25mn disaster pool. Industry figures pointed to it as another example of parametric products working well and gaining in popularity.

8. Willis Re II

Among brokers in attendance, the prospect of a Willis Re II emerging next year was naturally a discussion point. Consensus appeared to emerge that WTW – were it to pursue such a strategy – would need to buy a platform and find a strong/credible leadership team. On the latter, names mooted included its former CEO James Kent, who took the old Willis Re over to Arthur J Gallagher in a $3.25bn+ deal, and former Guy Carpenter executive Kevin Fisher.

In an exclusive interview with The Insurer on the eve of the Rendez-Vous, WTW CEO Carl Hess acknowledged it was “more likely than not” that the group would return to reinsurance in 2024 once its year-end lock-out expires.