Guy Carpenter working to bring more capital to cat risk for 2023: Klisura

Reinsurance broker Guy Carpenter is actively working to develop more catastrophe risk capacity for 2023, as the company is all too aware of the potential for an acute shortfall after hurricane Ian.

Speaking yesterday during the Marsh McLennan third-quarter 2022 earnings call, John Doyle, incoming President and Chief Executive Officer (CEO) provided some colour on hurricane Ian.

“Ian has the potential to be the costliest insured event in Florida’s history, and the second most damaging insured loss of all time,” he explained.

Adding, “While the ultimate insured loss won’t be known for some time, the impact on an already stressed property market will be significant. At mid-year reinsurance renewals, the property markets were already exhibiting strains. Following Ian, the property cat market is likely to tighten even further, and perhaps see a significant supply / demand imbalance.

“We’re likely headed to a much more challenging January 1st reinsurance renewal.”

Dean Klisura, President and CEO of Guy Carpenter and Vice Chair of Marsh McLennan, provided some additional colour on reinsurance market-dynamics in the wake of hurricane Ian.

“Demand for reinsurance, including cat property, is expected to remain very strong as our clients manage volatility and continue to address systemic risk, including cyber and the impacts of climate change in the emerging perils we’re seeing around flood, wildfire and convective storms around the world, continue to accelerate and concern our clients,” he said.

But agreed that, “Ian will certainly create challenging market conditions on January 1 in the property cat space.”

Going into more detail later in the earnings call, Klisura said, “Ian’s impact on an already distressed property market could be significant. Prior to Ian, there seemed like there was increased demand from clients to absorb inflation and recent losses in the market.

“So we’re already starting to feel that 1/1 stress and following Ian, we’re really starting to see the property cat market tighten, particularly in the US with potential supply imbalances in the marketplace.”

Klisura went on to highlight that this is the third year in a row where the industry has faced a catastrophe bill of more than $100 billion, and said this likely means more than just reinsurance rate increases.

He said clients may experience, “Increased retention, changes in coverage terms, reduced capacity from individual players, and also the impact from the retrocession market, which could be significantly impacted as well.”

Adding, “Some are discussing 25% of the retrocession capital being trapped by Ian in the market and not replenished for January 1. So certainly we’ve got some stresses there.”

Moving on to what Guy Carpenter is doing to try to secure new reinsurance capacity sources for its clients, Klisura explained, “We’re very working very closely with our clients, leveraging our deep expertise in the market, to work closely with clients to deliver successful outcomes and we’re investigating new capacity in the marketplace.

“We’ve been working for several months, with players around the world to bring more capital, more interest into the cat market on behalf of our clients.”

Klisura also highlighted how hardening markets can help reinsurance brokers, saying, “A tightening cat market could be a tailwind,” and highlighting that Guy Carpenter has a track-record of growth in harder markets.

Development of new broker facilities have been discussed for some time, with current market conditions making it no surprise that what are often termed broker-friendly structures are rising to the top of discussions again.

But, it’s to be hoped the ongoing discussions with new capital sources prove wide-ranging, in terms of their focus on how new reinsurance capital can be profitably deployed to the market at this time, with instruments such as catastrophe bonds potentially a very valuable way to encourage new investor flows to support global catastrophic risks.