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Hard market 'unlikely to create class of 2023'

Market conditions should be a 'slam dunk' for a class of 2023 reinsurers looking for private equity investors but this is not happening, Securis's head of investor relations for the UK and Europe tells Reinsurance Insight conference

Investors are more likely to back existing reinsurers with a proven track record rather than start-ups, Aon’s head of capital advisory says

The current hard reinsurance market is unlikely to see a class of 2023 or 2024, the head of capital advisory at Aon Benfield said.

Eric Paire said investors were more sceptical than they had been in previous periods of dislocation and new capital was more likely to back established reinsurers that required additional capacity.

“There is a demand, there is a need for existing player to get more capital,” Paire told delegates at Reinsurance Insight conference in London yesterday. “And I think it’s a much better position [for investors] in the current market to back someone with an existing proposition, existing track record, who needs to grow rather than take the risk of creating a start-up.”

Several established reinsurers have already successfully raised additional funds in the past year to help them take advantage of the current hard market conditions. In November Beazley raised £350m through a share placing just weeks after the firm’s chief executive, Andrew Cox, told investors a hardening market created “strategic opportunities” for growth.

Similarly, in March Ariel Re secured $270m of new capital to support through Lloyd’s London Bridge 2 vehicle. And in May Everest Re said it was targeting $1.5bn in a share offering.

However, Paire said the market was not seeing the dislocation it experienced after natural catastrophes including hurricanes Katrina and Ria – which supported the launch of the “class of 2005”, which included Ariel, Validus and Lancashire among others.

Paire said he expected capacity to be deployed in different ways, with investors more likely to back portfolio risk rather than granular or specific risks. “For many of them, what they want to do is underwrite portfolios of risks and back people who can properly originate, aggregate, control portfolios,” he said.

This was echoed by Victoria Carter, chair of global capital solutions at Guy Carpenter, who said the capital going to new ventures was following talent. “It’s following executive teams. [Investors want] a really strong executive team that’s got a really strong track record and can demonstrate they know what they’re doing,” she said.

This was also evident in the current success of the managing general agent (MGA) market, Carter said, which was being lifted by talented individuals unhappy with the performance of larger carriers.

“You’ve got a lot of disgruntled people in big companies today, specialty line underwriters who have written their portfolios very profitably, yet the overall organisation is losing money and they’re impacted on a personal basis. [They’re saying] why am I working for this company and not getting rewarded when I have a very profitable book of business?”

Speaking in the same session, Cate Kenworthy, head of investor relations for the UK and Europe at insurance-linked securities manager Securis Investment Partners, said the current market should be a “slam dunk” for a class of 2023 looking for private equity investors – but that was not happening.

“Some of the private equity shops, they have tonnes and tonnes of dry powder to deploy,” Kenworthy said. “Here’s a natural space to come and invest. It should hit the return requirement around now, it’s differentiating their portfolio.

“You would have thought it should be a better slam dunk for a class of 2023 but I’ve not seen it,” she added.

Earlier this week Gallagher Re chief executive, Tom Wakefield, said the reinsurance market appeared to be heading towards price stability given the limited new capacity entering the sector. 

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