New capital inflows, excess capacity and limited catastrophe losses have contributed to falling reinsurance prices and a challenging, soft market environment for specialty insurers and reinsurers, according to Guy Carpenter’s mid-year report.
"We have seen notable [mergers and acquisitions] transactions in 2015 that clearly illustrate the expected deal flow of a soft market,” said Andy Beecroft, head of mergers and acquisitions advisory for Europe, the Middle East and Africa for GC Securities.
“However we have also seen a broader spectrum of transactions that have not been driven by consolidation synergies, but instead by the recognition of a target’s inherently attractive business model and ability to generate an acceptable return on capital over the long term."
Guy Carpenter has highlighted the continued flow of alternative capital into the reinsurance markets. The growth of this capital, coming from a number of capital sources, has been 22 percent—compounding since 2008 and accelerating to 34 percent during the period 2012 to 2014.
The firm stated that this increased fluidity of capital likely accelerated the development of the challenging market and has been the major catalyst of consolidation activity in the reinsurance sector.
The report also singled out cyber risk as one of the most “pressing and public” topics the industry is grappling with, claiming that it is being addressed as a “strategic priority” in corporate boardrooms and in governments the world over.
The current size of the global cyber network/privacy insurance market, from a premium perspective, is approximately $2 billion and is expected to grow to approximately $5 billion over the next five years.
According to Guy Carpenter, a further challenge for reinsurers is the growing complexity of the regulatory environment as it increases at multiple levels and jurisdictions. The report stated that insurers are facing “new issues in their efforts to manage the regulatory landscape”.
