“A multitude of unknowns—lingering

effects, virus variants, long-term impact

of vaccines, etc.—will make the claims

tail thicker and longer. It will eventually

come down, but we do not anticipate

that to happen over a short term.”

Shankar Balakrishnan

Genpact

opened back up.

Then came the rise of inflation, which left

consumers strapped and prompted the Federal

Reserve to rapidly increase its benchmark interest

rates. For insurers in particular, that came with a price,

as the sprint to higher rates prompted unrealized

losses in their investment portfolios. Along the way,

there also were supply chain snarls and Russia’s

invasion of Ukraine, which brought about toughest-

ever sanctions and even more disruptions.

As economic concerns grew, President Joe

Biden in September declared the pandemic phase

of COVID over, though the presence of the virus

lingered, and work remained to be done. Biden’s

remarks, made in a

60 Minutes

interview, didn’t

mean the virus was no longer a threat, but they did

signal a shift in the level of urgency.

‘Weathering This’

Shankar Balakrishnan, L&A insurance segment lead

at third-party administrator Genpact, said from 1998

to 2012 insurance premiums hit lifetime lows and

coverage increased. The company provides closed-

block administration for life and annuity insurers, as

well as actuarial and data science support.

“While we have definitely entered the post-

pandemic era, we do not anticipate claims to fall

off the cliff,” he said. “A multitude of unknowns—

lingering effects, virus variants, long-term impact of

vaccines, etc.—will make the claims tail thicker and

longer. It will eventually come down, but we do not

anticipate that to happen over a short term.”

Death Benefits Paid

Total US Life/Health Industry

($ Thousands)

60,232,871

79,748,028

59,184,424

78,386,850

66,183,898

90,502,255

74,270,966

100,284,093

69,100,894

38

9 Month

12 Month

9 Month

12 Month

9 Month

12 Month

9 Month

12 Month

9 Month

2019

2018202020212022

Source: Statement File, Summary of Operations/Capital & Surplus Account; data as of Feb. 9, 2023.

BEST’S REVIEW • MARCH 2023

Life Insurance

40

Gallagher’s 2021 acquisition of Willis Re solidified the top three brokers in the

reinsurance market, while the recent creation of Howden Tiger has produced

a competitive fourth option.

by Anthony Bellano

A

rthur J. Gallagher & Co.’s acquisition of

Willis Re from Willis Towers Watson more

than a year ago created a significant

competitor to Aon plc’s Reinsurance Solutions and

Marsh McLennan’s Guy Carpenter, reshaping the

reinsurance broker landscape.

The Willis Re deal solidified the company’s

position at No. 3 in the reinsurance brokerage

Anthony Bellano

is an associate editor. He can be reached at

anthony.bellano@ambest.com

.

Key Points

Movement:

Every major reinsurance broker was involved in

some facet of M&A over the past four years.

Big Guns:

Aon’s Reinsurance Solutions, Guy Carpenter and

Gallagher Re rank as three of the largest global reinsurance

brokers, but Howden Tiger is a competitive fourth.

Disruption:

The combination of competition and a difficult

market often influence clients to change carriers.

BEST’S REVIEW • MARCH 2023

Reinsurance Brokers

broker’s position as a “major force in placing

property catastrophe reinsurance, as well as

strengthening BMS Re’s geographic presence in

key growth areas such as Florida, North Carolina,

Los Angeles and the Greater Boston Area,” BMS said.

“Consolidations involving smaller and mid-tier

brokerages … bear watching,” said AM Best in a

September 2022 market segment report titled

Record-High Direct Premiums Written for US

Surplus Line Segment in 2021

. “Additionally, the

number of active buyers diminishes significantly

once a certain valuation threshold is crossed

(probably in the neighborhood of $10 billion).”

“Consolidation in the reinsurance broker space

has certainly been a consistent trend in recent

years,” Porfilio said.

And this trend has produced an “unprecedented

movement of people and teams,” said Nick Durant,

CEO of Lockton Re North America.

“Many employees and teams of these

intermediaries viewed these combinations

negatively or as distractions and chose to leave,”

Durant said. “With subsequent disruption to

account teams, a substantial number of clients,

in turn, decided to put their business up for

competition. This disruption has been further

42

Reinsurance Broker Executives Recognize

Trends in Insurance-Linked Securities

Nick Durant

Chief Executive Officer

Lockton Re North America

Nick Durant, CEO of Lockton Re North America,

said that unlike previous cycles, much of the

nontraditional capital that is coming into the

market is targeting longer-tail lines, not property

catastrophe insurance. “Often taking the form of

collateralized structures, buyers are increasingly

entertaining these as potential alternatives to

traditional reinsurance,” Durant said.

“In maturing areas like cyber, capital sources

are very fluid and now include capital markets

investors,” Durant said. “Newly accepted forms of

cyber reinsurance like occurrence and [industry

loss warranty] are offering capital providers more

ways to enter the space aside from the historical

quota share and aggregate stop loss paradigm.”

J. Patrick Gallagher Jr.

Chairman, President, CEO

Arthur J. Gallagher & Co.

J. Patrick Gallagher Jr. said he believes more

capital will come into the market through

insurance-linked securities channels.

“This is the time in the market where risk-

taking capital finds its way into the risk world. We

can go back in my history, and you have all these

companies that started because we were in hard

markets. Capital seeks return. Obviously right now

returns are not very good in a lot of the investment

world. Inflation is a problem. I think insurance will

look attractive to the investing community and

capacity will come back.”

Paul Schultz

Chief Executive Officer

Aon Securities

Aon Securities CEO Paul Schultz said the

current environment is ripe for new capital to

come into the market in 2023. “What we’ll see in

2023 is back to more of a growth mode within

ILS largely because the expected returns that are

being offered today are really attracting not only

the existing investors in the space to increase their

allocations, but also bringing in new capital into

the market.”

Schultz said about $8 billion in cat bonds come

up for expiry in 2023, which will lead to business

activity as those clients look to renew. “We also

have a very healthy pipeline of additional issuance

for that, in part just because of where we are in the

reinsurance cycle.”

He said it was clear during renewals that some

cedents were interested in buying more than the

capacity that was available for sale, which he believes

will lead to more cat bond issuance this year.

“We’re looking to grow the asset class into

adjacencies like cyber and other types of specialty

businesses,” Schultz said. “We’ll make progress on

that for sure in 2023. My guess is that we’ll see more

cyber issuance as an example, but given where the

expected margins are on cat, investors are interested

in deploying capital within cat right now.”

BEST’S REVIEW • MARCH 2023

Reinsurance Brokers

44

Arthur J. Gallagher & Co. Chairman, President and CEO J. Patrick Gallagher

Jr. also spoke about reforms designed to stabilize the Florida market.

by Anthony Bellano

T

he current reinsurance market is a hard one,

but it’s the kind of market in which insurers

need brokers who can provide valuable work,

said J. Patrick Gallagher Jr., chairman, president, and

chief executive officer at Arthur J. Gallagher & Co.

“A hard market is when we can’t get anything

placed—when we actually can’t get it done, at

any price,” Gallagher said. “We’re in a very difficult

market, and it’s challenging, but we are getting the

cover that our clients need.”

During the recent Jan. 1 renewal period,

Gallagher Re saw property reinsurance rates jump

15% to 150% in the United States, varying based

on risk and catastrophe losses and outpacing

single- to solid double-digit rate hikes in Europe.

Rates increased as much at 100% for some

property renewals in Korea and Malaysia. Severe

storms battered Australia last year, where property

reinsurance rates were up 5% to 45%. Property

rates were flat for risk-loss free business in Latin

America.

It’s a market that’s been described as the

hardest in a decade. But it’s actually a time for

brokers to say, “Here’s where you need to take

more on yourself, and these are the prices that

are real,” Gallagher said. It’s difficult to explain a

30%- to 50%-rate increase to an insurer that hasn’t

had a loss in 20 years and isn’t dealing with

Florida wind and California wildfires, he said.

Sunshine State Struggles

Things have gotten dire in Florida, but

Key Points

Trying Times:

The current reinsurance market is producing

higher rates, but Arthur J. Gallagher & Co. Chairman,

President and Chief Executive Officer J. Patrick Gallagher Jr.

says that’s when insurers need their brokers the most.

Too Early to Tell:

While the outlook is positive, Gallagher

said it’s too early to tell what impact recent legislative moves

will have on the state of Florida.

Anthony Bellano

is an associate editor. He can be reached at

anthony.bellano@ambest.com

.

BEST’S REVIEW • MARCH 2023

Gallagher’s team is optimistic about reforms.

The state Legislature held two special

sessions in 2022, resulting in legislation that

eliminates the assignment of benefits and one-

way attorneys fees for property claims and

reduces to 18 months the time in which a

supplemental claim can be filed.

“My team tells me that the reinsurers we’re

working with day in and day out have cautious

optimism that things may change in Florida,”

Gallagher said. “Having said that, you have to

recognize that [Hurricane] Ian is likely to be

the largest-dollar claim we’ve had in the Florida

market. This has been five to seven years of

costly losses.”

Inflation, insured value and the run-up in

construction costs also are affecting the Florida

market, Gallagher said, noting that the insurance

industry—not the federal government—is

rebuilding western Florida, where Ian made its

initial U.S. landfall last September. “Our industry

is doing that every day. It’s not bad for us to

recognize that and be proud of it as an industry.”

BR

Reinsurance Brokers: Interview

Photo courtesy Arthur J. Gallagher & Co.

REINSURANCE ROUNDTABLE:

From left, Carlos Wong-Fupuy, AM Best; Aditya Dutt, Aeolus Capital Manage-

ment; Liz Cunningham, Somers Re; and Anthony Diodato, AM Best, discuss the global reinsurance market during

a recent AM Best analytical briefing.

46

Risks are increasing in the reinsurance sector and AM Best is finding a more

uncertain world with insurable risks more difficult to price.

by David Pilla

A

s the reinsurance market comes off a

difficult Jan. 1 renewal season, market

participants say the difficulties will continue

as macroeconomic conditions add to the dynamics

of underwriting performance.

“The world is going through a constant state

of flux as new and challenging risks continue to

David Pilla

is news editor. He can be reached at

david.pilla@ambest.com

.

BEST’S REVIEW • MARCH 2023

Key Points

Renewal Rates:

Rates came through with double-digit

increases across all lines and in most geographies throughout

the market, said Liz Cunningham, chief executive officer,

Somers Re.

Increased Risks:

AM Best is finding a more uncertain world

with insurable risks more difficult to price, said Carlos Wong-

Fupuy, senior director, global reinsurance, AM Best.

Retrocession Capacity:

Retrocession capacity has had

a significant impact on how companies have realigned their

interests in participating in the market, Wong-Fupuy said.

Reinsurance Brokers: Briefing