$150-billion event would turn the global reinsurance market: Guy Carpenter

It would take a $150-billion insured loss event to create a decided and sustained hard market in the global reinsurance market, Guy Carpenter reports.
A $50-billion insured loss event would stem the decline of property catastrophe reinsurance rates for at least one year in the current capital-rich environment, Guy Carpenter said in its GC Capital Ideas.
“At $100 billion, we believe ‘outlier’ reinsurance entity failures could occur, while a $150-billion insured loss event would create a decided and sustained market turn,” it says.
Guy Carpenter points to other catalysts that serve as “potent reminders” that the status quo in the industry is not permanent.
These include:

• Reserves: as reserve releases continue unabated, Guy Carpenter questions whether the sector has entered the “cheating phase” and how much longer favourable development can be expected to prop up calendar year results.
• Underwriting cash flows: U.S. P&C sector underwriting cash flow has also turned marginally negative, and Guy Carpenter’s experts noted the last hard market was accompanied by significant underwriting cash flow shortfalls.
• Low sector valuations: persistently low sector valuations could themselves prove to be a catalyst for change, by precipitating industry consolidation in the form of share repurchases and increasing the potential for mergers and acquisition, Guy Carpenter warns. Both could serve ultimately to restrict the supply of reinsurance capital.