Challenging market conditions due to abundant capacity, the ongoing influx of new capital and limited loss experience, continue to put pressure on the reinsurance sector, while recent M&A activity is adding a new dynamic to the mix. This is according to the panel of speakers at the eighth annual press briefing held at the Reinsurance Rendez-Vous 2015 in Monte Carlo, by Guy Carpenter & Company, LLC, a leading global risk and reinsurance specialist and a wholly owned subsidiary of Marsh & McLennan Companies.
The briefing was led by Alex Moczarski, President and Chief Executive Officer of Guy Carpenter & Company, LLC and Chairman of Marsh & McLennan Companies International. He was joined by David Priebe, Vice Chairman of Guy Carpenter; Nick Frankland, CEO of EMEA operations; and James Nash, CEO of Asia-Pacific operations.
In his opening comments, Mr. Moczarski provided a snap-shot of current market dynamics and the developments influencing these. He said: “The reinsurance industry continues to evolve and adapt to changing and challenging market conditions on several fronts. Continuing inflows of new capital and moderate loss experience mean that capacity remains abundant, maintaining pressure on pricing, terms and conditions. The long-predicted consolidation of the market has now started with inevitable consequences for rationalizing reinsurance buying.”
Commenting on pricing activity, Mr. Moczarski said that while the declining rates of recent years continued, these decreases were being mitigated by a number of factors. He added: “Average decreases were mitigated somewhat by more moderate decreases in US catastrophe reinsurance, especially the wind peril. Reinsurers were more successful in resisting demands for large price reductions following two years of steep declines, while demand actually increased in some lines as clients continued to seek access to innovative new products and improved terms and conditions.”
Assessing the impact of the continuing influx of capital into the reinsurance sector, Mr. Priebe commented on ILS pricing levels. He said: “We believe current price levels for ILS could be a ‘golden compromise’ in which protection buyers perceive good value for fixed-price multi-year cover and investors continue to broaden and diversify their portfolio of holdings. With costs of issue falling and time-to-market shortening, this equilibrium could provide a substantial boost to the market that the record issuance of early 2015 portends.”
Looking ahead to the renewals, Mr. Priebe summarized the potential US rate environment by stating: “We anticipate ample capacity for the US casualty reinsurance market, with pricing not expected to firm at January 1, 2016 renewals. We also expect US property reinsurance prices to remain relatively weak as supply for the most part exceeds demand. It also remains to be seen whether the tactical exploitation of soft markets by some buyers, and reinsurers’ resistance to aggressive demands for decreases will be repeated at January 1.”
Turning to developments in the EMEA region, Mr. Frankland described the last 12 months as a “testing period” for the market. Commenting on renewal expectations, he said: “Following another benign loss year, clients will continue to seek improved terms, yet reinsurers are beginning to get near to technical minimums, which will not allow enough scope for firm orders to be easily won.” Another influencing factor, he added, will be the impact of recent M&A activity and the interplay between the new combined groups and the existing markets. “Such a dramatic tension should work to clients’ benefit as they try to find the greatest value available and construct the most responsive panels,” he concluded.
Focusing on the Asian market, Mr. Nash highlighted the increasing flow of capital from the region into Europe, Lloyd’s and the US. He said: “Asia is perceived as a growth opportunity and is attracting capital from mature markets, but it is actually Asian capital seeking opportunities overseas which is the headline story this year. In 2015, Asia-Pacific has been a net exporter of insurance and reinsurance capital through M&A, with Japan and China leading the charge into Europe, Lloyd’s and the US. In the year to September 2015, outbound deals totaled USD20 billion compared with inbound deals of only USD849 million.” Looking ahead, he added: “We expect the M&A trend to continue as insurers, reinsurers and funds in the region pursue growth and diversification by going West, but we also anticipate a larger number of intra-region deals and also capital from the West coming East.”
Introduction by Alex Moczarski, President and Chief Executive Officer, Guy Carpenter & Company, and Chairman, Marsh & McLennan Companies International
David Priebe, Vice Chairman, Guy Carpenter and Head of GC Securities
Nick Frankland, CEO of EMEA Operations, Guy Carpenter
James Nash, CEO of Asia-Pacific Operations, Guy Carpenter
Conclusion by Alex Moczarski, President and Chief Executive Officer, Guy Carpenter & Company, and Chairman, Marsh & McLennan Companies International
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