Guy Carpenter & Co. LLC is having "very productive conversations" with investors about putting more money into the property-catastrophe reinsurance business, according to the reinsurance broker's chairman.
"Hopefully that will transpire into new capital coming into the business," David Priebe said in an interview at the Rendez-Vous de Septembre reinsurance conference in Monte Carlo. The new money could enter through a variety of routes, Priebe said, including funding existing reinsurers, allocating money to catastrophe bond funds and even investments in startups.
Property-catastrophe reinsurance capacity is being squeezed as the reinsurance market heads toward the Jan. 1, 2023, renewal season, when roughly 50% of the world's reinsurance coverage will renew. A number of reinsurers are cutting back on capacity or even withdrawing from the property-catastrophe business entirely in a bid to reduce earnings volatility.
At the same time, interest in cover is rising, with Guy Carpenter estimating that demand is set to rise by 10% and 15%.
"We really haven't seen a flow of new capital coming in to meet that demand," Priebe said.
Although there are "lots of initiatives underway" to bring new capital into the property-catastrophe business, Guy Carpenter is "guardedly optimistic" that a number of investors are recognizing the industry's attractions given pricing and structural changes seen in recent years. Nevertheless, Priebe expects the upcoming renewal season to be a "challenge."
"We are going to have to look to all sources of capital and all forms of solution to meet client requirements," he said.
The reinsurance market is facing a range of challenges as the Jan. 1 renewals approach, including the effects of climate change, inflation, geopolitical tension stemming from the war in Ukraine and the threat of recession. Priebe said he had never seen such a confluence of renewal-shaping issues and events at any other point in his career.
Priebe was reluctant to put a figure on how much prices could increase at the next renewal season, but he expects property rates to continue to rise because of the expectation for higher loss costs driven by inflation and other factors. Outside of property, there will be a "more balanced and stable market," Priebe said. Positive changes that insurers have made on pricing and coverage in casualty business has put reinsurers more at ease in this area.
"I think the reinsurers have felt comfortable with that, and so we are seeing a more stable marketplace on the liability side," Priebe said.
