NEWS
Reinsurers’ appetite for aggregates and lower-layer capacity remains muted
Reinsurance buyers could still face a challenging negotiation, says Julian Enoizi, CEO of Guy Carpenter Europe.
Reinsurance buyers could still face a challenging negotiation as they approach the year-end renewal as appetite among reinsurers for lower-layer capacity and aggregates remains muted. But the renewal should still be a lot more orderly than last year, Julian Enoizi, chief executive officer of Guy Carpenter Europe, told Baden-Baden Today.
“In terms of pricing, there are still headwinds as sensitivities to the issues of 2023 linger. Reinsurers will be looking to adjust for the impacts of inflation, which remains stubbornly high. We will see significant discussions around wordings and coverage negotiations and I don’t expect there to be significant new capital coming into the market for 1/1,” he said.
“Generally, securing aggregate cover will continue to be challenging. Higher levels of programmes are likely to be oversubscribed, while lower-layer capacity and aggregates are likely to remain highly constrained. Many cedants will be looking at structured solutions to get the best results for the lower part of programmes.”
He added that on property lines, there is a general recognition of price adequacy having been reached, with expectation of sufficient capacity at 1/1.
“Casualty market conditions continue to trend in a cautious direction, but we expect capacity to remain stable. Cedants who articulate a clear underwriting strategy and disciplined approach to limits management will be those best able to secure the reinsurance coverage they require,” Enoizi said.
He acknowledged that the market has undergone a significant shift in pricing and terms and conditions over the last 12 months. He believes this has not yet come to an end, but he thinks the bid-and-offer spread has narrowed.
“We expect capacity to remain stable.”
Julian Enoizi, Guy Carpenter Europe
“You will see a firm market this January that is more orderly than last year’s. Reinsurers are maintaining price discipline, but after 12 months of material corrections, we anticipate more stable market conditions carrying forward, subject to no market-impacting losses,” he said.
He added that more insurance-linked securities (ILS) capacity has entered the market than in recent years. “Absent a major loss in the latter part of this year, reinsurers and ILS funds are optimistic that they will be able to attract capital for property-catastrophe retro programmes, given the improved underlying market conditions,” he said.
Property prices are seen as broadly adequate by reinsurers, in Europe specifically, after a year when major loss events included the earthquake in Turkey, floods in Slovenia and Italy, and hailstorm-related damage, but renewal characteristics and cedant differentiation will continue to be important factors.
“In casualty, we expect less appetite, with prior-year results continuing to come under significant scrutiny and the underlying rate environment moderating,” he said.
Enoizi took the role of European CEO in September. He said he is looking at significant growth opportunities in continental Europe—not only in traditional treaty reinsurance, but also in facultative reinsurance, structured solutions, strategic advisory and life reinsurance. “I’m bullish about the opportunity that lies ahead—we have a great team across Europe and I’m extremely optimistic about the future,” he said.
“There is increased collaboration with the public sector to develop more innovative solutions.”
Innovative solutions
Prior to his new role, Enoizi was global leader of Guy Carpenter’s public sector solutions practice, a role he continues to hold. As such, he knows a thing or two about some of the growing exposures and political tensions influencing the public sector and its decisions about managing risk.
He said that, after a relatively benign 70 years, a sharp increase in geopolitical tensions, with Russia’s invasion of Ukraine and the rapidly escalating conflict in Israel, are changing the mindset around risk in the public sector. These factors are overlaid with concerns over climate change, cyber risk and a future potentially deadly pandemic.
All this means governments are coming under huge financial strain, he noted. This is increasingly leading to a clear and growing appetite within the public sector for greater collaboration with the private sector.
“The issue, however, is how you close the gap between what the government is willing to cover, at least explicitly and ex-ante, and the industry’s appetite to assume those risks. With this a market can be created, people can have access to insurance, which is a prerequisite to a growing economy, and resilience is enhanced,” Enoizi said.
“The public sector cannot be expected to simply provide a ‘blank cheque’ or an unlimited backstop every time we are faced with a risk of extreme magnitude. The private sector recognises this and there is increased collaboration with the public sector to develop more innovative solutions that will expose it to some, but not the entirety, of the risk.”
He said examples of such solutions can be seen in efforts around the reconstruction and recovery of Ukraine, led by Guy Carpenter’s parent Marsh McLennan, and in other segments of industry the establishment of mutual-type structures to manage cyber risks.
“You will also see increasing focus on developing public-private partnerships based on innovative structures to address issues relating to climate risk financing and climate adaptation,” he concluded.
Main image: Shutterstock / Oleksii Mishchenko