The reinsurance market is unlikely to see a large influx of new players even with a conducive trading environment, according to brokers and capital markets advisers.
Market conditions for reinsurance startups are positive at the moment as higher prices, tighter terms and increased client retentions are improving profitability in the sector. Demand for reinsurance could grow further as inflation pushes up exposures at primary carriers, and investor confidence in the reinsurance market, dented by several years of catastrophe losses and poor returns, is starting to return after a good first half.
Yet industry executives at the recent Rendez-Vous de Septembre reinsurance conference in Monte Carlo were not expecting a wave of newcomers to take advantage.
"I don't see any white knights running in right now. I don't see a huge 2024 flurry of start-ups," Chris Bonard, CEO of broker Ardonagh Specialty Holdings' Bermuda operation, said in an interview.
Even as heavy hitters in the reinsurance space gathered in Monte Carlo, news of several hopeful entrants emerged. Former American International Group Inc. and Marsh & McLennan Cos. Inc. CEO Brian Duperreault has joined forces with investment manager Mereo Advisors to launch a new reinsurance business, Insurance Insider reported, and Hannover Re CEO Wilhelm Zeller and former Axis Re CEO Steve Arora are seeking funds for a new Swiss reinsurer called Alpine Re.
There are "a couple of Bermuda reinsurers looking at start-up capital," according to James Ferris, director of capital and advisory at broker BMS' Bermuda operation.
Previous periods of high prices and more stringent terms have spawned clutches of reinsurance startups, such as the class of 2001, formed in the wake of the terrorist attacks in the US that September. But expectations are muted for successful launches this year.
"I'd love to see startups," David Priebe, chairman of reinsurance broker Guy Carpenter & Co. LLC, said in an interview, but he is "not optimistic that there'll be a big new class of 2024."
Wary investors
Any new reinsurers will have to compete for investor attention with existing companies looking for fresh funds to expand while conditions are good.
"Investors are skeptical about whether it makes sense to back a new team versus put more money behind an existing firm," Bill Cooper, managing director of Howden Tiger Capital Markets & Advisory in the UK, said in an interview.
With startups, "capital is going to follow a strong management team with a strong reputation and record," BMS' Ferris said. Ferris added that buying into an existing business "is probably an easier sell," because investors can see the track record rather than having to put their faith in a good management team at a startup.
Prices, terms and contract structures in property-catastrophe reinsurance are now particularly favorable for those that write the business, but investors are still wary of the volatile line after several years of losses. While they are willing to back proven property-catastrophe writers, such as Everest Group Ltd., which completed a $1.5 billion equity raise in May, it is "almost impossible" to get funding for a new property-catastrophe focused reinsurer, Ardonagh Specialty's Bonard said.
"If people are going to put money in the property-cat area they'd rather give it to someone that's already got billions of it, already understands their exposures, has had a chance at making returns," Bonard said.
A further sticking point is determining the duration of the investment and the exit strategy for investors, according to Guy Carpenter's Priebe.
"That's been the piece that has probably been holding the creations back," Priebe said.
Any new reinsurers gunning to be ready for Jan. 1, when about half of the world's reinsurance renews, are racing against the clock. The industry kicks off its renewals discussions in Monte Carlo in September and starts getting into the details at the Baden-Baden meeting in October.
"If you're not set up right now, it's going to be very difficult to do that in the next couple of months," Patrick Hartigan, group head of treaty at Lloyd's insurer Beazley, said in an interview.
Bigger names likely have better chances of getting online in time for the Jan. 1 renewals.
"There is no better insurance executive in the business than Brian Duperreault and if anyone can do it, Brian can," Priebe said.
Improving prospects
For established companies, the going should be smoother.
Good firms will continue to raise new capital to grow in the areas where they're confident there are opportunities, Cooper said.
Although the mood is largely positive, it may take longer to fully restore investor confidence. Reinsurers' returns on equity were in excess of their cost of capital at the half-year stage, but with Atlantic hurricane season in full swing, there is no guarantee this will prevail.
This is a "pivotal year" for investor confidence in the reinsurance industry, Cooper said. Another year of sub-par returns in today's good trading conditions would be unhelpful, but if claims bills for the full year are within the expected range, that ought to be "quite a big vote of confidence," Cooper said.
