Capital markets now a resident of the reinsurance industry: Laurent Rousseau, Marsh Re

Laurent Rousseau, CEO of Global Capital & Advisory, and Europe and IMEA at Marsh Re, said today that the capital markets are “no longer a visitor” but “now a resident” of the reinsurance industry, as investors increasingly allocate to the space.

As reinsurance broker Guy Carpenter officially becomes Marsh Re, executives at the firm discussed the rebrand, as well as market conditions ahead of the 68th annual meeting of the industry in Monte Carlo later this week.

In light of the projected rise in dedicated reinsurance capital to a record USD 705 billion at year-end 2026, with new records of USD 575 billion and USD 130 billion expected for traditional and alternative capital, respectively, the insurance-linked securities (ILS) sector was a hot topic.

“Investors continue to allocate more capital to our industry and they are right to,” said Rousseau. “This alternative capital makes the reinsurance industry more efficient. It matches capital to a market that has delivered an extremely profitable position to investors.”

Despite the positive overview, Rousseau said that it’s vital to be honest about the conditions for these dynamics to persist, noting that the capital markets are not without volatility.

“Many investors are still on a journey to understand insurance-linked securities in all their forms. For this market to be sustainable, investors must understand the true nature of insurance and reinsurance risk. They need to understand the very nature of claims development and adjustment. Investors so far have bought into the return, they now need to buy into the risk and understand operating in the reinsurance industry commands responsibility,” said Rousseau.

By their very nature, the financial markets are volatile, and Rousseau emphasised that it will be years that test conviction.

“But let us make no mistake about the direction of travel. This has been a long-term trend, and has not yet found its equilibrium point. The capital markets are no longer a visitor to our industry; they are now a resident,” he continued.

According to Rousseau, going forwards, reinsurance companies that understand how to partner with the capital markets and who make that partnership part of their value proposition, will be the durable competitive advantage.

In terms of why so many more cedents are embracing alternative capital, Rousseau explained that the ILS universe brings them choice in terms of both capacity and terms.

“It brings them choice in terms of the source of capacity is different, so alternative capital responds to different dynamics than traditional reinsurers… Point two is more supply means better terms, there is competition on the terms. And the third point I would say is they operate in a very different way,” he said.

Rousseau described alternative capital as a follow as it’s not looking to lead a placement, and compared the dynamics to the primary insurance market, where there is a bifurcation between the leaders and the followers.

“This trend is coming, I think, to the reinsurance world through capital markets, whereby alternative sources of capital provide this kind of follow capacity, and they can do that in size. Some of these funds are huge, and they can really take a 20% share across all placements. And by doing so, they’re actually very cost effective,” said Rousseau.