New reinsurance market dynamic at 1/1 – pricing firm, capital plentiful: Priebe, GC

The reinsurance market saw a dynamic emerging around the key January 1 reinsurance renewals where pricing has remained firm, while capital has proven to be plentiful, Guy Carpenter’s Chairman David Priebe has said.

There has been no lack of capital to get the key 1/1 2024 reinsurance renewals completed, as unlike last year capital has rebounded for traditional reinsurers that also have increased appetites, while the insurance-linked securities (ILS) market has responded to demand for protection and grown the catastrophe bond market considerably as a result.

Demand for protection has risen in many areas of the market, from higher-layers right the way down to retrocessional covers, but the availability of capital has been both a driver for demand and a response to it, helping to achieve far smoother execution of renewal placements.

As we reported last week, markets have been signed down in areas where capital proved most abundant, retrocession being one area of the market to see this.

But Guy Carpenter’s senior team have highlighted much-improved conditions for buyers, as a more competitive and capital abundant reinsurance and retro market fought for their shares.

We’re hearing some markets have been particularly competitive at these renewals, taking the opportunity to write more business while pricing remains at firm levels.

There is perhaps an element of nervousness here, that rates could now enter a softening phase if capital exceeds demand for cover over the next year, definitely a desire to make hay while the prices on offer remain so good.

David Priebe, Chairman of Guy Carpenter, said, “A market dynamic is emerging where pricing remains firm, but capital is plentiful.

“Further concurrency is being achieved in certain areas, providing an important level of consistency in coverage.”

That dynamic could be short-lived, unless discipline can hold, which remains to be seen.

While the January reinsurance renewals have been smoother than the prior year, Guy Carpenter said, “There were still geographies and client segments that faced challenges reaching market-clearing pricing and structure.”

Adding that, “Outcomes were dependent on loss experience and technical, data-driven insights, reflective of reinsurers’ focus on a more in-depth understanding of portfolio dynamics. While property renewals were the focus a year ago, casualty faced more scrutiny this year.”

“The January 1 market reflected more balanced trading conditions providing cedents improved opportunities to achieve their objectives while maintaining key reinsurer relationships,” explained Dean Klisura, President and CEO, Guy Carpenter. “Technical discussions were essential to reinsurers’ increasing appetite and capacity allocations.”

As a result, capacity was seen to range “from adequate to ample” the reinsurance broker said, where price and structure thresholds were being met and this included where additional demand was being seen.

“The market increased contract-level consistency on both wording and structural variations, thereby reducing non-concurrencies from the previous cycle, a signal of all parties working toward balance in a complicated market,” Guy Carpenter also explained.

As we had reported last week, there are cases where a program may have had numerous slips, with differentiated terms, and those have been reduced down to two or even fewer at these January 2024 renewals, making for a smoother placement environment.

Capacity deployment has been far more of a priority at these renewals, with reinsurers motivated to deploy as much as they can into areas that meet risk-adjusted return requirements and there has been a determination to secure firm pricing while it lasts, it seems.

Lara Mowery, Global Head of Distribution at Guy Carpenter, noted, ““While a 2023 startup class did not emerge, existing participants demonstrated access to capital where conditions support increased participations. This market’s ability to provide solutions through shifting risk perspectives played out across classes and regions.”

John Trace, CEO, North America at the reinsurance broker, also said, “The reinsurance sector is entering 2024 from a position of strength. Materially improved underwriting conditions and the tailwind from higher nominal investment yields are generating additional capital and increasing market competition.”

While on retrocession, James Boyce, CEO of Global Specialties, explained, “At January 1, more than sufficient supply to meet demand for property retrocession renewals led to improved buying conditions, particularly at more remote levels. Retention levels broadly held despite growth in underlying portfolios, and greater consistency in terms and conditions was achieved.”

Looking ahead, it’s going to be fascinating to see whether discipline holds, as the inevitable capital flows do return over time.

The market appears to find a sweet-spot at this renewals, in terms of holding pricing largely at firm levels, while supplying adequate capital to ensure an easier renewal outcome for many cedents.

As we move through 2024, it’s going to be interesting to see how disciplined reinsurance and ILS markets can be and whether the firm market can persist another full-year until January 2025.

Read all of our reinsurance renewals coverage here.