“There is a shared appetite from insurers and reinsurers to grow in specialty lines to dilute volatility in other classes, which should improve market dynamics for trade credit, bond and political risk,” according to David Edwards, Co-Head, Credit, Bond and Political Risk Division, Guy Carpenter.
Edwards’ comments stem from Guy Carpenter’s coverage of Baden-Baden 2023, in which the Co-Head examined the state of the credit and political risk market and its outlook for the January renewals.
“While other reinsurance classes have hardened, the prevailing sentiment in this segment has been a sense of realism about rate developments, with insurers more focused on favourable conditions and capacity than price,” Edwards explained.
According to Edwards, insurers value long-term relationships with reinsurers over pushing for marginal rate movements, especially in times when they are hard to achieve.
“Overall, despite a general over-supply of reinsurance capacity for credit risks, there has been under-deployment by reinsurers, which remain more cautious than insurers about the risk environment,” he said.
As for the renewals at January 1 2024, Edwards noted that they are likely to begin from a “narrower base” compared with 2023, with the most likely scenario being stability on average for the market.
However, he stated that the range between the high and low is expected to spread for a variety of factors, in particular the performance of individual cedants.
Edwards added, “Overall, there is a shared appetite from insurers and reinsurers to grow in specialty lines to dilute volatility in other classes, which should improve market dynamics for trade credit, bond and political risk.
“Strong new business opportunities should drive continuing improvements in average portfolio quality for the market as a whole, helping to reduce the overall market volatility further.”
Concluding, Edwards said that in the current risk environment for trade credit, bond and political risk, “the ability of insurers to demonstrate a strong risk management focus will be critical.”
He went on, “While it might appear axiomatic to say that data is central to successful reinsurance buying, there is no doubt that quality data is more valuable than ever.
“There will be an even greater onus on cedants to provide the maximum possible data, particularly for specific distressed exposures, with detailed quality data provided early being indispensable for generating the best outcomes.”