Guy Carpenter chairman: This is one of the most challenging and complex markets we’ve seen in years

“As an industry, we have risen to many challenges before,” Priebe said during Guy Carpenter’s ‘Materializing Possibilities’ media briefing. “The conditions at the forefront of our current market environment are complex and intertwined. That just means we need a focused outlook based on thoughtful, collective, data-driven strategies to employ and engage as we deliver solutions for the near-term, while also keeping an eye on the longer-term horizon.”

The current market environment is unique because of the confluence of so many challenges. Recessionary concerns are top of mind as governments work to tame inflation and equity markets reside in bare territory – and this follows a period of enormous socio-economic change during the COVID-19 pandemic, which altered how people want to live and work.

“This, coupled with ongoing uncertainty around loss trends due to entrenched inflation, supply chain issues, the Russian-Ukraine conflict, climate change, and social inflation means now more than ever, the reinsurance industry must continue to demonstrate its resilience and innovation,” Priebe stressed.

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Inflation has been a significant area of market focus since countries around the world started increasing their consumer price index (CPI) in reaction to pent-up consumer demand after the COVID-19 pandemic and the Russian invasion of Ukraine. According to Priebe, the rise of inflation has “flipped the insurance earnings storyboard from top line growth to bottom line focus, with an emphasis on differential between current and historical pricing and loss trends”.

In this environment, reinsurers like Guy Carpenter play a key role in analyzing the impact of inflation and other potential loss drivers on individual portfolio, conveying the adjustments that insurers are making to the wider market, and reassessing insurers’ risk tolerances to ensure that their solutions and mitigation efforts protect their downside.

“The insurance market has now been in a firming cycle for 19 consecutive quarters,” Priebe added. “This puts the industry on stronger footing to confront emerging challenges. Rolling rate increases on insurance coverages have improved earnings. Risk profiles have been reshaped through disciplined pricing and underwriting. Loss trends and loss picks are frequently being re-evaluated as the environment remains uncertain and ever changing. Insurers and reinsurers alike are being strategic about the business they’re taking on and are carefully evaluating the corresponding risks before assuming it.

“To solve our most complex challenges, we must go beyond the typical reinsurance offering. At Guy Carpenter, we acknowledge and embrace the evolving role of our sector in this ever-changing world of risk. We provide critical mechanisms for recovery when they’re needed post-loss, and we also shouldn’t overlook our ability to research, innovate, and define policy that creates a better approach before losses happen.”

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Looking ahead to 2023 conditions, the Guy Carpenter chairman said that insurers and reinsurers must continue to monitor the 2022 loss experience, which – excluding additional reported COVID-19 losses this year of about $2 billion, and exposure to the Russia-Ukraine conflict, currently estimated by S&P at $16 billion – was sitting at approximately $38 billion after the first six months of the year.

“In response to the loss activity and emerging headwinds, reinsurers continue to present a shifting view of risk,” said Priebe. “Therefore, cedents’ differentiation remains incredibly valuable, particularly in loss-impacted geographies and lines. For specialty lines, perspective forecasting must also examine the Russian-Ukrainian conflict and its ultimate effect on their respective businesses. The gap between reported losses, and the consensus total remains significant.

“In addition to the higher-than-average loss activity, depletion of CAT budgets is the primary concern of rating agencies and investors. Elevated levels of CAT loss coupled with inflationary pressures and financial market volatility presents headwinds for the sector’s profitability and capital.”

Priebe said he expects demand for reinsurance to remain strong as “as risk awareness and desire for downside protection is pervasive across the industry in this uncertain environment”. He described the current environment as “one of the most challenging and complex markets we’ve seen in years,” and he predicted that the January 01, 2023 renewals will follow similar themes experienced at mid-year 2022.