Who picked up the tab in Monte Carlo this year?

Historically, the reinsurance industry has picked up the tab at the Monte Carlo Rendez-Vous event, in a demonstration of the capacity providers keeness to maintain the good relationships they have with cedents and hold onto shares in their renewal programs.

But, in 2023 after this year’s Rendez-Vous event, analysts at JMP Securities have suggested that it may have been the insurers side that picked up the tab, highlighting just how much the primary market needs access to reinsurance capital.

It’s a great way of summarising the feeling at this year’s meetings in Monte Carlo, where the reinsurance industry meets with a view towards beginning discussions that will now run to the end of year renewal season.

In recent years, the primary carriers have held a lot of the cards, with ample reinsurance capital and an industry facing significant competition from the insurance-linked securities (ILS) market, all driving a competitive environment where reinsurers might be more keen to pick up the tab.

But, with reinsurance capacity still lower than it has historically been, but more importantly a new level of risk-aversion having spread across all reinsurance capital providers and a determination that returns can and will remain elevated by historical comparison, the willingness to pick up the tab may have shifted to the primary side.

The analysts from JMP Securities note that, on the insurer and broker side, a relatively flat renewal, in terms of reinsurance pricing, may be seen as a victory at the January 2024 contract signings.

Availability of capital is not an issue and there is expected to be more coming in, but it does come with return expectations that are far elevated above previous years and that is not expected to change in time for the January 2024 renewals.

“In broad strokes, all sides appear to be in relative agreeance on the likely outcome. Reinsurers are pushing for further rate increases — at least enough to keep pace with inflation — but will be quick to note that they care more about terms and conditions than pricing, within reason (more on that below). Brokers/insurers acknowledged that it will likely be difficult to get pricing to come down and that flat would be viewed as a victory,” the analysts explained.

They expect a particular focus around the upper-layers of reinsurance towers at the renewals, with top layer protection expected to be in demand.

Which is interesting, as this is where the highest levels of competition are also expected to be. Not least because of the catastrophe bond market operating at these layers.

But, if there is more demand at those higher layers as well, it could dampen the urgency in competition and help to sustain pricing and terms, even at the levels in towers where brokers say they will be pushing for a more acceptable outcome for their clients this year.

“The one comment we heard that summed up all you need to know was that while reinsurers historically picked up the tab in Monte Carlo, this year insurers were highlighting just how much they need their reinsurance partners and are trying to remain in their good graces,” the JMP Securities team stated.

Carriers seem aware that the risk pricing landscape has now changed and that there is a desire not to see pricing soften back as fast as seen in previous years.

In fact, we’d say that this year’s event was characterised by far more agreement, on reinsurance market conditions and expectations for the renewals, than perhaps ever before, which resulted in a far more productive feel to the event and much less of a clash in messaging at the various briefings held.

The one clash of opinion was seemingly between reinsurance brokers and the major reinsurers, with brokers clearly feeling they need to garner some concessions for their clients, while reinsurers are hoping to see little change, in terms of market conditions at year-end.

It wouldn’t be Monte Carlo without a divergence of views between the broking and reinsurer communities and it’s natural for one side to want the best price and terms for their clients, while the other wants to sustain returns for their shareholders.

But, it can’t be denied that there are primary carriers which are struggling and increasingly rely on their reinsurance, while also perhaps needing to secure more of it this year.

That does put the capital providers in the driving seat, both on the traditional and ILS sides.

Meaning, given the costs of reinsurance coverage these days, the challenges primary insurers face in managing their portfolios and charging risk commensurate pricing in the first place, plus the still very high cost of intermediation that sits in the industry chain that in part drives impressive organic revenue growth, if anyone’s paying the bill this time around, at upcoming industry events through conference season, some inn the industry might suggest it should be the brokers.

Of course, the best way to settle a bill and the fairest way for constituents that might have one eye on expenses, is to split the cost, either at the table, or across the different rounds of meetings in the run up to 1/1.