In January – amidst the gloom of mid-winter and the disappointing 1.1 renewals – we pointed to signs of optimism.
We observed that reinsurance demand had nudged up in 2017 and predicted it will continue this year with the added fillip of the cat losses in the second half of last year.
We also noted that the industry – despite its vast capital surplus – was de-leveraging and this meant that the excess capital will not have the same dampening effect it might otherwise have on rates (or on dampening demand from over-capitalised cedents).
Deleveraging – we observed – was already happening in a number of ways. The first was M&A, a tried and tested way of using surplus capital. We spoke before this year’s carousel of M&A activity, which is approximately $30bn in deal value compared $12bn before Monte Carlo 2017.
Carriers were also retrenching and this has been demonstrated most vividly at Lloyd’s where Jon Hancock has led a major review into underwriting performance throughout syndicates’ books.
Our take from the Monte Carlo Rendez-Vous is that we were not just correct back in January but too cautious in our predictions.
Reinsurance demand is up – and significantly.
It is unclear whether it is the impact of the 2017 losses, deterioration on back years, the reserves well drying up, carriers de-risking or the growth of new products, but what is indisputable is that demand is up strongly.
Perhaps the most authoritative view is Aon’s analysis of its aggregate of reinsurers. GWP climbed 15 percent from $127bn to $144bn in the first half of the year. That is significant.
Admittedly, there is less clarity on rates at this year’s Rendez-Vous with some pessimistic underwriters fearing a forthcoming squeeze on cat rates at 1.1.
But in the meantime everyone attending Monte Carlo should celebrate the renewed enthusiasm for the reinsurance product…