Reinsurers increase appetite for structured solutions amid growth phase

Reinsurers are showing an increasing willingness to offer structured multi-year, multi-peril solutions to preferred clients as they seek to grow during the positive phase of the cycle, according to Guy Carpenter’s CEO of EMEA and global capital solutions, Laurent Rousseau.

The former Scor CEO had characterised reinsurance market pricing as “risk-adjusted plus” when he spoke to The Insurer in his first interview at the reinsurance broker last October.

Eleven months on, Rousseau believes the dynamics seen at recent renewals are now changing.

“ We are certainly in a more competitive marketplace both on the property and casualty sides of the sector. If you look at the insurance side, current dynamics could be described as risk-adjusted flat. In such an environment, there is certainly going to be increased pressure on reinsurance rates,” he explains.

One of the major talking points to emerge during last year’s Rendez-Vous was the rising buyer interest in alternative reinsurance structures to protect against volatility.

As this year’s conference season begins, Rousseau says there is still a clear demand for alternative reinsurance structures to address rising loss frequency following the upward movement in attachment points that began at 1 January 2023.

“From the supply side, I do not see any meaningful movement in the near future in terms of where reinsurers are currently attaching,” he says. “However, what we are seeing is greater flexibility in terms of the reinsurance solution itself, as reinsurers look to partner with clients and show commercial pragmatism to the best potential partners.

“While rising attachment points have impacted the level of overall risk transfer, there is a greater funding component to these solutions. While reinsurers are looking to cap their exposure to frequency losses, they are increasingly willing to offer more structured multi-year, multi-peril solutions.”

Rousseau says reinsurers are maintaining a client-centric approach as they look to grow during this positive phase in the cycle.

“They are taking a view of risk that extends across their clients’ overall scope of business lines. While there is still a willingness to accept a level of frequency exposure, they are keen to ensure that they can counterbalance this by incorporating other placements within the solution that provide that risk-balancing component.

“So, we are seeing greater interest in developing these multi-year, multi-peril structures which offer an acceptable level of balance.

“It is important to recognise also that the (re)insurance cycle is at play here. Reinsurers are maintaining a strict adherence to underwriting discipline in the current market environment, so their approach is not unexpected or unusual.”

To date, the market has not seen a wave of new start-ups with investors finding other ways to support the reinsurance sector.

“There is the potential for a Class of 2024/25 to emerge, but we expect that it would be relatively small and selective in its market approach – perhaps a class similar in size and focus to that which we saw emerge in 2021,” Rousseau says. “It is unlikely that they would be property cat focused, but rather maintain more diversified portfolios.”

In terms of capital growth, Rousseau says the market is seeing significant growth from existing players.

“Another key market feature is the catastrophe bond sector, which continues to strengthen year on year as new investors enter this space and existing investors increase their involvement.

“The first half of 2024 was a record period, with $12.2bn in limit placed by the end of June, a 29 percent increase from the first half of 2023,” he says.