GC’s Mowery: “Vibrant” reinsurance market bolstered by structural changes

Structural changes within the reinsurance market in recent years have played a key role in the segment’s return to profitability, with carriers having added $35bn to traditional shareholders’ equity capital, Guy Carpenter’s global head of distribution Lara Mowery has told The Insurer TV.

In its mid-year renewal report, the reinsurance broker observed a “transitioning reinsurance market”, with structural changes driving much of this transition in the longer term.

“A year ago, we were in a very difficult market with an incredible amount of adjustment going on in price and program structures and the evaluation of reinsurers relative to their view of risk, fundamentally leading to a lot of market correction,” explained Mowery.

“We've seen a lot of that change from 2023 now having an effect in 2024, so we're in the process of transitioning.

“In having the results of the price changes, the structural changes and the change in reinsurers’ focus on how they want to approach 2024, it’s created an environment where we've gone from reinsurers not making their cost of capital for four out of the six years, to now in an environment where those returns are much healthier,” she added.

However, Mowery noted that while the market will always react to ebbs and flows in pricing, the changes made to structures will likely be a longer-term feature of the market.

“As we all know, attachment point adjustments have been a core part of the transition we’ve been seeing,” Mowery said. “In particular, with severe convective storm in the United States, cedants really have historically looked to aggregate solutions [and] lower layer underlying catastrophe risk solutions, and that capacity continues to be very scarce.”

She continued: “As that capacity has become more and more scarce, those companies now are having to look at their portfolios of business and the way that they're structuring their own products and the way that they're writing business.

“Do they need to do more exposure management within the portfolio? Do they need to look at deductibles to consumers or the way that they're offering product and coverage? We're seeing all of that happening, as those companies have to think about whether reinsurance will be available in the same way over the next 10 years versus previously.”

Data is still king when it comes to accessing casualty reinsurance

Mowery also touched on how challenging dynamics in the casualty space are leading to greater capital inflows to the property market.

“As we transitioned into 2024 reinsurers were saying, ‘I don't want that much more of your casualty business unless I can also have a balance with more of the property’,” she said, marking a change from how the market viewed casualty in 2023.

Mowery attributed reinsurers’ reduced appetite for casualty to the impact of social inflation.

“So when we talk to reinsurers about that and their appetite, and their focus going forward, everybody wants to be mindful of what's happening in the space particularly around things like social inflation.”

However, Mowery noted that while the casualty reinsurance landscape has undoubtedly shifted, appetite remains for cedants that are able to paint a convincing picture with their data.

“We are meeting demand in casualty as buyers work with their reinsurers through all of these factors. Once we get to that point of having gone through the data, we’re placing business; we’re not coming up short. Reinsurers are absolutely engaged in the marketplace, looking to find solutions and allocating capacity,” she concluded.

Watch the 19-minute video with Guy Carpenter’s Lara Mowery to hear more about the dynamics at the mid-year reinsurance renewal, structural changes, the role of ILS and more…