Guy Carpenter Addresses the Return of Capital to the Reinsurance Industry at Monte Carlo Rendez-Vous
Guy Carpenter & Company, LLC hosted a press briefing at Rendez-Vous in Monte-Carlo on September 5, 2009, focusing on the return of capital to the reinsurance market.
Brian Duperreault, President and Chief Executive Officer of Marsh & McLennan Companies, Inc., opened the briefing. Peter Zaffino, President and CEO of Guy Carpenter, then led a panel of Guy Carpenter executives that included Vice Chairman Richard Booth, Henry Keeling, President and CEO of International Operations, Chris Klein, Global Head of Business Intelligence and David Priebe, Chairman of Global Client Development.
In his introductory comments, Mr. Zaffino emphasized, “The reinsurance industry has been resilient this year, but we still have significant challenges ahead of us. After last year’s losses, we have seen capital replenished throughout the first half of 2009, and we see that reinsurers are better positioned to respond to clients’ needs.”
Richard Booth remarked, “Absent another major event, either property or financial, signs are pointing to a fairly benign renewal season. As we saw last year, there are many factors that could still change renewal pricing. If we do not have a market-changing cat event, reinsurance pricing will be based on available capital and how insurers and reinsurers allocate it.”
“Despite the challenging market conditions, reinsurers have been able to regain much of the capital that was lost as a result of the financial crisis and 2008 windstorms,” said Christopher Klein. “Fears of a capital famine, not to mention the shortage itself, appear to have passed. By every measure — earnings, shareholders’ equity, volatility, book value — a recovery is in progress.” Mr. Klein added, “Whether these trends will be sustained remains to be seen, but we may be entering a growth period.”
David Priebe commented on the resurgence of the capital markets. “As part of their risk and capital management strategies, major issuers are using cat bonds to complement and diversify their core placements.” He also noted, “With capital flowing again, cedents and markets have options, and they are taking advantage of them.”
Mr. Priebe continued, “There is a possibility that cat bond issuance activity could reach USD3 billion this year, especially with increased sponsor interest due to the reduced clearing spreads on the July transactions.” He also added, “Over the next 24 months, M&A activity is likely to be robust. Opportunities abound, and as insurers and reinsurers take advantage of them, others will follow.”
Henry Keeling explained the capital management implications of Solvency II legislation, noting that a sophisticated compliance program can result in a competitive advantage. “Beneath the surface, there are hidden revenue opportunities. We have found that a thorough and effective compliance program can actually free up capital that might otherwise be committed as a regulatory requirement.” He added, “In the Solvency II environment, competitive compliance will make a difference.”
“After a year of severe strain on capital, we have seen a return to stability and our focus is now on opportunities,” Mr. Zaffino concluded. “Achieving optimal return on capital is critical to our clients. In order to do this, we must thoroughly understand their core strategies and partner with them from beginning to end. They need us to help them understand their risks and the range of options for managing them in order to realize the greatest return.”
Introduction by Peter Zaffino, President and CEO, Guy Carpenter and Brian Duperreault, President and CEO, Marsh & McLennan Companies, Inc.
Richard Booth, Vice Chairman, Guy Carpenter
Christopher Klein, Global Head of Business Intelligence, Guy Carpenter
David Priebe, Chairman of Global Client Development, Guy Carpenter
Henry Keeling, President and CEO of International Operations, Guy Carpenter