The old idiom that ‘when America sneezes, Europe catches a cold’ remains of relevance to the reinsurance market. However, while what happens in America does tend to influence the industry as a whole, the last year has seen the European reinsurance market navigate headwinds and tailwinds alike to firmly establish itself as an entity with its own distinctive risk profile.
Offering his perspective on developments that may influence discussions in the run-up to the reinsurance renewals, Julian Enoizi (pictured), CEO for Guy Carpenter Europe, noted that the US hurricanes Helene and Milton are on the agenda. While the full extent of the losses is still not fully baked, and reinsurers continue, therefore, to apply rate pressure, Guy Carpenter is championing its clients’ interests, highlighting that most of the impact is still retained by insurers.
“This is a challenging dynamic. Over the last few years, while reinsurers have continued to manage capital and solvency issues, they have increasingly pulled back from addressing volatility,” he said. “If you look at a client from our perspective, they are heavily focused on capital management and solvency, but volatility is also still a big issue for them, their results and how they grow. And that’s somewhere we are advocating strongly on behalf of our clients.”
Looking at what 2024 has brought for the European reinsurance sector, in particular, Enoizi noted that Guy Carpenter estimates that the European market saw about $7 billion in losses in the first half of the year. Projecting this out to a full-year result, 2024 is expected to be a loss year below the average of the last 10 years, and certainly of the last three years which have yielded exceptional losses. “If you combine that with reinsurers’ returns on equity, which are very healthy, we need to encourage the market to do more on that volatility piece, and help insurers remove some of that from their balance sheets.”
It's an interesting discussion for the Guy Carpenter team to have, he said, and a necessary and timely one given the pressures facing insurers. Those pressures – particularly on the secondary perils side – have been under increased scrutiny. While it’s one thing to understand and be aware of these risks, it is another thing entirely to actually manage them. “That’s another area where we are encouraging reinsurers to focus on the purpose [of reinsurance] – which is to help insurers be able to play the role they have in providing the most effective coverage to their insureds.”
For Enoizi and his team at Guy Carpenter, the theme of advocacy runs deep through the core of the reinsurance proposition – not least in the role of the industry in helping to bridge the protection gap impacting insureds, communities and societies at large. As a client, he said, he always expected and valued that advocacy piece from his own broker. “I wanted them to advocate on my behalf, to explain to the market that while terrorism was a difficult risk to insure, it was not uninsurable. And that’s a mentality I’ve brought forward into my role as CEO of Europe.”
Touching on some of the external conditions impacting the European market today, he noted that it’s enjoying a less active loss year, despite operating against the global backdrop of an active loss year. Guy Carpenter’s assessment is that there is excess capacity in the market, he said. “Our estimate is that Guy Carpenter Europe puts $30 billion of limit into the market and there’s probably somewhere in the region of 15% to 20% of excess capacity as at December 1. Now we still think that that's going to be deployed variously at the top layers. And that goes to my point about looking to deploy some of that capacity at the lower layers, so that volatility can be managed more effectively for our clients.”
Over the last three years, there was an average of $16 billion in significant insured losses in Europe, while, over the last 10 years, the average stood at $9 billion – the market is currently at around $10 billion when you include recent Spanish losses, the vast majority of which will not impact the reinsurance market itself, but rather the local Consorcio. So, depending on what happens in the rest of this year, he said, the market could see a lower loss ratio year than has been seen on average in the last three years. Guy Carpenter believes if that is the case, it should feed through to the way reinsurers are looking at clients in Europe – not in the context of America’s loss results, but rather on a case-by-case basis.
“We will certainly advocate on a case-by-case basis for our clients,” Enoizi said. “We feel that Europe has had a better year than it has in the recent past and clients have done a lot to mitigate their loss. They've done a lot in terms of re-underwriting and repricing their portfolios – and all of that is to the benefit of reinsurers.”
The benefits of a case-by-case approach are seen by the great variety that exists across Europe as a market. “Each part of Europe is exposed to different risks and has its own story to tell,” he said. “Even within Europe, in the same way that the European market should be treated differently from the US market, you have loss-free areas that don’t want to see losses in other parts of the region impacting their markets. So, it’s a fascinating environment.”
