Good financial performance at reinsurance companies over the past 18 months should persuade investors to put more capital into the industry, according to David Priebe, chairman of reinsurance broker Guy Carpenter & Co. LLC. However, the flow of capital into the industry will continue to be modest, Priebe added.
Investors are continuing to see reinsurers show discipline on pricing and terms and conditions, and they recognize the changes reinsurers made to property-catastrophe pricing and structures in 2023.
"[These] have had a material effect on the return characteristics for the reinsurance industry, particularly in the property side," Priebe said in an interview with S&P Global Market Intelligence at the Rendez-Vous de Septembre reinsurance conference in Monte Carlo.
"I think investors are saying ... that it feels like a sustainable area to deploy capital," Priebe said. "I think we'll continue to see some influx, albeit probably still at a moderate level."
Priebe said the capital would mainly flow to existing reinsurers and noted that there still had not been "any sort of material new-new capital coming into the business" other than through the catastrophe bond market. He added: "I think there may be some successful new [companies] coming in, but I think that will be more pointed towards the specialty insurance lines rather than purely reinsurance."
New companies were mooted around the time of the Monte Carlo Rendez-Vous last year after reinsurance trading conditions and returns improved, but none have yet launched.
Talk of reinsurance startups has rekindled at this year's Monte Carlo Rendez-Vous. Insurance Insider recently reported that Mereo, chaired by former Ace and American International Group CEO Brian Duperreault, has secured a cornerstone investor. Just before the conference kicked off, Polo Managing Agency announced that Lloyd's of London had granted in-principle approval for a new reinsurance syndicate called Oak Re Syndicate 2843, which plans to start underwriting on Jan. 1, 2025.
Roughly half of the world's reinsurance renews on Jan. 1 every year.
Starting up in today's reinsurance market is challenging, Priebe said. "You need to have meaningful capacity and capital to be impactful. So you need $1 billion-plus, if not $2 billion. And therefore, the stakes to entry have gone up from what it was five to 10 years ago."
Improved profitability at existing reinsurers means they are generating capital to meet insurers' demand for the cover they offer. Priebe said Guy Carpenter's figures showed that after dividends and share buybacks, reinsurers collectively had $35 billion to redeploy on growth in 2023. This compares with approximately $30 billion of fresh demand for reinsurance from insurers in 2024, meaning supply and demand are broadly matching.
Reinsurers should be in for another profitable year in 2024, Priebe said, and while some might be more aggressive on dividends and share buybacks, "net-net, I think you'll continue to see growth overall in the capital, which we think will continue to match demand."
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