Fundraising for both new start-ups and existing players has been a dominant theme in recent months, and Gulbransen said the $10bn of new capital that his firm expects to enter the market is “certainly” going to have some impact on pricing.
“If there’s a lot more capacity that comes in, that will push the pricing curve down or perhaps just level it off,” he said.
But pushing back against that downwards pressure are a multitude of factors such as Covid-19, catastrophe losses and the low interest environment, all of which will also have a significant bearing on pricing dynamics heading into 2021.
“Covid is having an impact, but there are a lot of other factors that were in play prior to Covid,” he said.
“[There are] low to no interest rates that impact reinsurers’ abilities to earn investment income [and] it wasn’t too long ago where we had significant losses from 2017 and 2018,” Gulbransen said.
The industry has also been hit with smaller, but still sizeable, catastrophe losses from convective storms and tornadoes this year, while there is also the potential for additional wildfire and hurricane-related losses through the end of 2020.
Gulbransen pointed to the instability in the equity markets and the underlying weakness of the US economy as additional factors that must be considered.
“It’s not a short list, and that list impacts across insurers and reinsurers,” said Gulbransen.
These issues all combine to leave carriers with a sense of uncertainty. And that uncertainty is pushing up the cost of capital and forcing carriers to consider how adequate their margins are.
“There’s greater uncertainty today than there was 12 months ago, and that’s driving people’s view of cost of capital,” said Gulbransen.
“More uncertainty means there might be more volatility, which means there’s a higher degree of charge for that capital to put at work in the insurance and reinsurance space,” he added.
Referencing the pandemic specifically, Gulbransen said it will be some time before the industry truly understands its full exposure to the event.
“It could be years before we can say this pandemic Covid-19 cost us X dollars,” he said.
“I don’t think it’s something that people are going to know about immediately [and] it’s going to be a slower bleed in my opinion.”