In this interview with Intelligent Insurer, connected with the 2023 Baden-Baden Reinsurance Meeting, Guy Carpenter’s Laurent Rousseau, CEO, EMEA and Global Capital Solutions, discusses how hard market conditions in reinsurance are different from those previously experienced, meaning it should endure longer than prior favorable markets.
“First, the inflection happened first in the insurance market, from 2017—previous cycles had been reinsurance-led,” Laurent explained. “Second, this time around it is the macroeconomic drivers, such as interest rates and inflation, that have acted as the catalysts for the market turn, accelerating pre-existing (re)insurance market factors, which had not been sufficient by themselves to turn the reinsurance market.”
“These factors include increased loss activity, a rapidly evolving risk environment, and prior-year loss developments in casualty,” he continued. “This market turn is led by the need to better remunerate capital, as opposed to resulting from a dearth of capacity. There is reinsurance capacity out there, but it requires a significantly higher closing price.”
Laurent goes on to describe how another differentiating factor is the potential duration of current conditions.
“Given the persistently high interest rates and inflation environment, coupled with increased uncertainty at the macroeconomic and the risk level, this could serve to prolong this period,” he said.
Regarding conditions he expects to see during January 1 renewals, Laurent expects the market to remain firm, subject to there being no major reinsured industry loss events between now and then.
“We would expect to see in some cases an increase in demand for reinsurance and a greater willingness by reinsurers to deploy capital in a disciplined fashion, given the fact that rates across most business lines have reached adequate levels,” he said. “However, cedents may choose to retain more risk given improved overall solvency stemming from considerable efforts to de-risk their portfolios and strong results over recent years.”