It’s a question of capital deployment not availability: AM Best’s Carter

In a recent address at the Europe Insurance Market Briefing in London, Greg Carter, Managing Director of Analytics at rating agency AM Best, shared insights into the state of the reinsurance market.

His remarks shed light on the industry’s dynamics and the factors influencing its current trajectory.

“If you look historically, at hard markets in the reinsurance world, it’s often been driven by capacity crunches and our view is that this this cycle is different,” Carter said.

“There is still plenty of capital in the industry, it is just a question of how that capital is being deployed.”

One reassuring factor for the industry, according to Carter, is the strong capitalisation of reinsurers. He pointed out that reinsurers have maintained solid financial positions, which have helped provide stability in these uncertain times.

Carter also emphasised that the reinsurance market’s focus on earnings and the pursuit of returns that meet or exceed the cost of capital have remained steadfast, even in the face of rising interest rates over the last 18 months.

One notable distinction in the current hard market, as per Carter, is the absence of a rush of new capital and companies entering the market. While there has been talk of potential startups, he expressed a degree of caution regarding investor interest in these opportunities.

Many proposed business plans, he noted, have struggled to raise the necessary capital to launch new ventures, suggesting that investors may be wary of the industry’s track record in producing substantial returns.

Carter also mentioned that the allure of the reinsurance sector may not be as strong as it was in previous years, given the evolving economic landscape, including rising interest rates and post-COVID rebounds in various sectors.

“We don’t see a significant number of new entrants. I don’t rule it out, but it’s not going to be sufficient new capital to drive the market. I think we will see the existing players continuing to expand their portfolios,” he said.

“In terms of price, I think there is further upward pressure and I would expect to see, a forecast don’t hold me to this, modest single digit rises broadly across the field,” added Carter.

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