“Heightened volatility and prolonged uncertainty” to drive reinsurance demand in 2021 – Guy Carpenter’s David Priebe

Covid-19, climate change, cyber security and demographic changes are all contributing to heightened volatility across the risk landscape, which is driving prolonged periods of uncertainty and demand for reinsurance.

David Priebe – Guy Carpenter

During an interview with The Insurer TV for the latest programme, David Priebe, chairman of Guy Carpenter, said the industry was facing a range of new risks in 2021, but equally, new opportunities.

“The (re)insurance sector has a strong track record of responding at periods of change and I think putting the capital to work to create new coverages to meet that evolving demand will be crucial for our long-term relevance,” said Priebe.

Priebe also anticipates this “heightened view of risk” will prompt buyers of reinsurance to purchase more coverage in order to protect balance sheets and future earnings against elevated losses.

“There is a wide variation in insurers’ individual situations, but in general, buyers view reinsurance as protection and important during times of heightened volatility and prolonged uncertainty, which we are experiencing right now,” he said.

“I think that will continue to drive demand for reinsurance and the reinsurance market is set up to supply that capital at adequate rates, so I think we’re in a good place.”

Additional tightening of terms and conditions and further exclusions are expected to be a continued feature in renewal negotiations moving forward as the true cost of Covid-19 becomes clearer and lessons from the pandemic are applied to other classes of business, particularly cyber.

While this may provide some certainty around claims payments, it does also mean that capacity is contracting in certain areas and gaps in coverage are forming. “As specific exclusions for things like communicable disease and cyber are introduced, in some cases coverage going forward is far more restrictive,” he said.

“However, clarity between cedants and capital providers is essential. When cedants have a clear view of the coverage provided, they are able to identify and address those gaps that may exist in coverages.

“Striving for clarity – not only the understanding between all parties, but also in that contract language – is really vitally important. In respect to the very broad initial wordings that came out around Covid, we put in extensive work with the markets to refine that communicable disease exclusion to ensure the losses that are not intended to be excluded remain unquestionably covered,” Priebe asserted.

Price momentum on underlying business could lead to better terms

Surging rate momentum on the underlying business has improved economics for reinsurers in recent months, and while Priebe expects this to continue into 2021, he expects the pace of pricing momentum to slow down.

“We expect to see continued positive momentum in the primary markets well into 2021…but maybe not at the same pace,” he said, citing the preview of the firm’s recently released Q4 Marsh Global Insurance Market Index, which revealed year-on-year rate increases that accelerated to 22 percent in Q4 2020, from 20 percent in Q3 2020.


“The fundamentals are still at a level that I think the primary markets are going to seek to achieve price improvements – and I think that will be across all lines,” he said, adding” “I’ll leave it to the underwriters to decide which is the best line or where they see the best rate of improvement, but we believe that pricing is exceeding loss costs and therefore supports continued reinsurance support at the same or better terms for our clients.”

“Another profound year of change”

Looking forward, Priebe is absolutely certain that the industry’s recovery from Covid-19 is going to be a “key driver to watch”. “While communicable diseases are excluded in most cases going forward, the real issue will be the development of losses from existing coverage, which is still unclear. The ultimate magnitude of those losses will have an impact on future negotiations in the market going forward,” he said.

“I think that will probably be the number one talking point during 2021. As these losses emerge from the primary carriers, [the question will be] how does that translate and flow into the reinsurance market and will reinsurers respond to those losses effectively and constructively?”

However, Priebe also expects the discussions around public-private partnership solutions to move forward in 2021, which will be “critical” when it comes to defining how coverage is going to be provided going forward.

Key themes in 2021

According to Priebe, Guy Carpenter is “very bullish on the opportunities within the reinsurance markets” in 2021, and in addition to Covid-19, identifies the following as key themes this year.

“The (re)insurance industry provides incredible value to the global society. It has proven resilient in this year of high catastrophe loss activity and the great thing is that new capital has entered the market, backing both incumbents and start-ups so it shows the capital supports the business we’re in,” he said.

“We are seeing more innovation and technology advances across all elements of the value chain, so I’m really proud to be part of this great industry. 2021 is likely to be another year of profound change as we seek to address these challenges and opportunities while the changing nature of risk continues to evolve as a result of climate, technology, and social pressures.”

He concluded: “It stands to be a very exciting year for us.”

Click the link below to watch the full 10-minute interview with David Priebe brought to you by The Insurer TV


David Priebe, Guy Carpenter