Guy Carpenter Looks at Reinsurance Market

Guy Carpenter & Company LLC hosted a special briefing for the press attending Reinsurance Rendez-Vous in Monte Carlo on Sept. 6.

Peter Zaffino, president and CEO of Guy Carpenter, opened the discussion with observations on the unique complexities of today’s reinsurance market, followed by additional insights from Guy Carpenter’s Chris Klein, Global Head of Business Intelligence, David Priebe, Head of the Global Client Development Group, and Nick Frankland, CEO of European operations.

Zaffino noted that, with the subprime crisis, “we are witness to a new type of catastrophe – the ‘financial catastrophe’ – with the power to hit both sides of the balance sheet.”

He continued by presenting the negative impact of the credit crisis on 2008 six-month earnings results, pointing to reduced investment results that put pressure on underwriters to maximize returns.

Klein stated, “If the credit crisis persists, there could be a post-loss liquidity crunch –” Even with sidecars and cat bonds to supplement traditional reinsurance, Klein added that “risk transfer is only as effective as the capital behind it.”

Turning to market conditions, Klein pointed out that high retentions by primary insurers have accompanied the soft market conditions. With the frequency of large per risk losses in the first quarter of 2008, together with a string of hurricanes, it means “losses will weigh more heavily on primaries, who may then seek to buy down retentions.” He added that “Gustav and Hanna are unlikely to have a major impact on pricing, but Ike could be a turning point.”

Priebe added that the alternative capital market is maturing, not disappearing. He stated, “The market is showing us the difference between capital markets as a source of urgent capacity and capital markets as a source of strategic capacity. Today, we’re seeing the latter.”

Frankland commented on the European casualty marketplace, noting that risk is becoming harder to isolate as linkages in the business world are replicated in carriers’ portfolios. He stated, “Casualty catastrophes, litigation, changing access to cash – it all comes down to disciplined capital management. The industry has to focus on capital first, with every risk-related decision tied back to a capital implication.”

A replay of the press briefing is available at http://www.guycarp.com/portal/extranet/pressbriefing.html.