The return of capital to the reinsurance market was the focus for a group of Guy Carpenter & Co LLC speakers at a top conference held in Monte-Carlo this month.
The panel of Guy Carpenter executives led by president and CEO Peter Zaffino and including president and CEO of international operations Henry Keeling, vice-chairman Richard Booth, global head of business intelligence Chris Klein, and David Priebe, chairman of global client development, discussed everything from the resurgence of capital markets to Solvency II compliance programmes adding a competitive advantage, at the Rendez-Vous conference last week.
Brian Duperreault, president and CEO of Marsh & McLennan Companies Inc., opened the briefing, and Mr. Zaffino talked about the resilience of the reinsurance industry this year and the challenges ahead.
"After last year's losses, we have seen capital replenished throughout the first half of 2009, and we see that reinsurers are better positioned to respond to clients' needs," he said.
Mr. Booth said that the signs were pointing towards a quite benign renewal season, in the absence of another major event, either in the property or financial market, but added there were many factors that could still change renewal pricing.
"If we do not have a market-changing cat event, reinsurance pricing will be based on available capital and how insurers and reinsurers allocate it," he said.
Mr. Klein said that despite the challenging market conditions, reinsurers have been able to regain much of the capital that was lost as a result of the financial crisis and 2008 windstorms.
"Fears of a capital famine, not to mention the shortage itself, appear to have passed," he said. "By every measure - earnings, shareholders' equity, volatility, book value - a recovery is in progress. Whether these trends will be sustained remains to be seen, but we may be entering a growth period."
David Priebe said that big issuers were using cat bonds to complement and diversify their core placements, while cedents and markets had a number of options which they were taking advantage as a result of the return of capital.
"There is a possibility that cat bond issuance activity could reach $3 billion this year, especially with increased sponsor interest due to the reduced clearing spreads on the July transactions," he said. "Over the next 24 months, M&A (merger and acquisition) activity is likely to be robust. Opportunities abound, and as insurers and reinsurers take advantage of them, others will follow."
Henry Keeling explained the capital management implications of Solvency II legislation, noting that a sophisticated compliance programme could provide a company with a competitive advantage.
"Beneath the surface, there are hidden revenue opportunities," he said. "We have found that a thorough and effective compliance program can actually free up capital that might otherwise be committed as a regulatory requirement. In the Solvency II environment, competitive compliance will make a difference."
