Dean Klisura, President and CEO of Guy Carpenter, the reinsurance arm of Marsh Mclennan, has suggested that reinsurers had the upper hand at the January cat renewals.
The quote comes from Marsh McLennan’s Q4 2022 earnings call, in which Klisura was questioned about changes in client behaviour at the renewals.
He said, “I think, in terms of buying patterns at January 1 in reinsurance, attachment points were up substantially for many of our clients, not only in the United States, but in all geographies. Our clients were forced to take more risk, and more volatility on their balance sheets.
“Inflation-driven demand for additional limit – which everybody talked about during fall – didn’t really materialise. Clients mostly bought the same amount of cat limit they bought last year, maybe up incrementally. Our global clients bought a little bit more.”
Klisura continued, “Some of that limit that was eliminated at the bottom end of cat programs was put on top of programs, so clients made that up. But in terms of buying more, I think, for many, it was cost-prohibitive given the rate increases around property cat.
“Reinsurers had the upper hand in this marketplace around pricing, attachment points, and very challenging terms and conditions.”
John Doyle, President and CEO of Marsh McLennan, reiterated Klisura’s statement, suggesting that the firm expected it to be a challenging renewal season even before Ian.
Doyle said, “Reinsurers, of course, now have a higher cost of capital, inflation, and mark-to-market losses on the asset side of their balance sheet. A number of the big reinsurers and a lot of the cat programs in the United States created some FX challenges as well. Several different factors led to a re-evaluation of pricing and capacity deployment from some of the bigger capital providers.”
Meanwhile, Marsh McLennan recently reported consolidated revenue of $5 billion for Q4 and $20.7 billion for the full-year 2022, supported by solid revenue growth at Guy Carpenter.
At $5 billion, consolidated revenue in the fourth quarter of 2022 actually declined by 2% when compared with the prior year period, but rose by 7% on an underlying basis.
For the year 2022, revenue increased by 5%, year-on-year, or by 9% on an underlying basis to $20.7 billion.
In terms of operating income, Marsh McLennan has reported a decline from $986 million in Q4 2021 to $680 million in Q4 2022, while adjusted operating income increased by 13% to $1 billion in the period.
For the year, operating income totalled $4.3 billion, while adjusted operating income increased by 11% to $4.8 billion.
During the Q4 2022 earnings call, Mark McGivney, Chief Financial Officer at Marsh McLennan, siad that based on the firm’s current outlook, it expects Guy Carpenter’s growth to benefit from the aforementioned tightening reinsurance market in 2023.