Property cat demand helped by cat bonds & appetite for retro: Doyle, MMC & Klisura, GC

Senior leadership executives from Marsh McLennan and its reinsurance broking unit Guy Carpenter explained today that the catastrophe bond and insurance-linked securities (ILS) market has helped in meeting rising client demand for property catastrophe coverage.

John Doyle, President and CEO of Marsh McLennan and Dean Klisura, President and CEO of Guy Carpenter and Vice Chair of Marsh McLennan, both commented during a second-quarter earnings call today, on the way cat bond and ILS market activity and growing investor appetites have helped in providing more capacity to satisfy client needs at the recent mid-year reinsurance renewals.

Notably, across the first-half of 2024, Guy Carpenter saw some two-thirds of its US clients buying more property catastrophe reinsurance coverage, across an additional $10 billion of limit, which CEO of the reinsurance broker Dean Klisura said “is truly significant in the marketplace.”

“The headline, the key takeaway, is significant increased client demand for additional property cat limit,” Klisura explained.

He noted a much smoother renewal experience for Guy Carpenter clients at the mid-year placements, with adequate capacity available.

On the traditional reinsurer side, Klisura said, “There’s an increased reinsurer appetite in the market and we know why, right? They’re driving 20% plus ROE’s in this market, given the rate increases of last year and the higher attachment points our clients have been forced to absorb with greater volatility.”

Which reads across just as positively to the increased investor appetite for deploying capital to instruments such as catastrophe bonds and private ILS.

Marsh McLennan CEO John Doyle said that, “Midyear reinsurance renewals reflected increased demand for property cat, with easing rates after significant increases in 2023. The majority of property placements were completed at renewal with adequate capacity.

“The global property cat reinsurance rates were generally flat to down mid-single digits, with greater decreases for upper-layers on accounts without losses.”

Doyle went on to highlight that, “The cat bond market had the most active quarter on record, with over 30 new bonds issued involving approximately $8 billion of limit.”

Which is a further input to the fact upper-layers of reinsurance towers saw some of the greatest rate pressure at the renewal.

Klisura further explained, “We’re seeing very strong ILS activity in the market. John noted record cat bond issuance in the quarter, there were 34 discrete cat bonds, some $8 billion of limit in the quarter.

“We’re seeing moderating cat rates in the market compared to 2023. But I would say that, if you look at year-over-year premium spend for property cat and our rate-on-line index, it’s still up 1% year over year, it has not gone negative in the market.”

Klisura then highlighted that the increase appetite and capacity in the ILS market stretches further than just in catastrophe bonds.

“We’re also seeing clients, reinsurers by more retrocession coverage, with improved pricing, market dynamics, improved appetite by sellers, both rated and ILS vehicles in the market,” Klisura commented on the retro renewals.

However, Klisura noted that property cat capacity providers remain cautious.

“The last headline for you is, there’s caution in the property market. There’s $50 billion plus of insured losses in the first-half of the year, when you think about severe convective storms in the US, and Japan and Taiwanese earthquake, floods in Germany and the UAE, Baltimore bridge collapse, Hurricane Beryl. I mean, we could be on track for another $100 billion dollar year of insured losses.

“So there’s caution in the market around property and property cat.”