In its sixth annual press briefing held at the Reinsurance Rendez-Vous 2013 in Monte Carlo, Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist and member of Marsh & McLennan Companies (NYSE: MMC), considered the impact of new capacity on current market conditions and explored where the opportunities exist for profitable growth in such an environment.
The briefing, entitled Capacity Creates Choice and Challenge, was led by Alex Moczarski, President and Chief Executive Officer, Guy Carpenter & Company, and Chairman, Marsh & McLennan Companies International. He was joined by Guy Carpenter’s David Priebe, Vice Chairman; Victoria Carter, Vice Chairman of International Operations; and Richard Booth, Vice Chairman.
Mr. Moczarski began by addressing one of the key developments currently influencing reinsurance market dynamics. He said: “The biggest issue this year by far has been the continuing influx of new capital into the reinsurance market. A record amount has entered and it has had a clear and direct effect on market conditions.”
Delving deeper into the direct impact of this new capital on reinsurance pricing, Mr. Priebe said: “The impact of the new capital has been most dramatic in the US during 2013. For the first time, the ILS market offered prices comparable to or lower than those of the established reinsurers, ending the general stability and consensus of post-Katrina catastrophe pricing, especially in Florida. Strong appetite tightened spreads for US hurricane catastrophe bonds forcing the traditional reinsurers to react by cutting Florida risk-adjusted renewal prices by around 15 percent at the June 1 renewal. It was a tipping point for the reinsurance industry.”
Turning to how current market conditions are influencing reinsurance buying strategies, Ms. Carter said: “The reinsurance buying decision is moving higher up the chain of command, often to the C-Suite floor. Here the reinsurance debate is as much about capital optimization as it is about protection. Indeed, reinsurance is seeing an enhanced and more sophisticated role as a form of substitute capital and this is providing opportunities to soak up some of the recent flood of new capacity.”
Considering where opportunities for growth might lie in today’s market, Mr. Booth believed that both emerging and mature risks afforded such opportunities. “Take catastrophe risk,” he said. “A common view is that this is a saturated commodity market, yet between 1970 and 2012 70 per cent of total global economic losses from natural catastrophes were not insured amounting to US$1.7 trillion. The gap between economic and insured catastrophe losses continues to widen.” He added: “Elsewhere, new risks such as cyber risk, renewable energy, food and water security, urbanization, growing prosperity and longevity to name but a few present opportunities and gaps that can be filled by insurers and reinsurers.”
Bringing the briefing to a close, Mr. Moczarski said: “Market conditions for the remainder of the year and the January 1, 2014 renewal will be influenced by loss activity. The influx of new capacity will also continue to exert pressure on market conditions, especially in the USA. Consequently, in the absence of further significant catastrophe losses the market trends observed in recent months will continue or accelerate.”
Introduction by Alex Moczarski, President and Chief Executive Officer, Guy Carpenter, and Chairman, Marsh & McLennan Companies International
David Priebe, Vice Chairman, Guy Carpenter
Victoria Carter, Vice Chairman of International Operations, Guy Carpenter
Richard Booth, Vice Chairman, Guy Carpenter
Conclusion by Alex Moczarski, President and Chief Executive Officer, Guy Carpenter, and Chairman, Marsh & McLennan Companies International
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