GC’s Carter and Aspen’s Cloutier on capital selectivity, discipline and innovation

Conversations at this year’s Rendez-Vous de Septembre in Monte Carlo have centred on the shifting dynamics of capital, market discipline and the evolving role of innovation.

Vicky Carter, chairman of global capital solutions, international at Guy Carpenter, and Mark Cloutier, executive chairman and CEO of Aspen Insurance Holdings, offered a range of insights in an exclusive interview with The Insurer TV.

Both leaders highlighted the industry's recent reset, driven by more selective capital and a heightened focus on profitability and long-term relationships.

The capital shift: a more selective approach

Carter opened the discussion by acknowledging the market's transformation since 2016-2019, a period marked by heavy catastrophe losses and a struggle to meet the cost of capital.

"No one was meeting their cost of capital," she said, adding that the market's recent reset, particularly in reinsurance, has brought about much-needed discipline.

While capital remains available, Carter noted that investors have become far more selective in how they allocate funds.

"We're seeing capital come in behind those who can demonstrate a consistent track record of profitability," she said.

This shift is evident in the preference for long-term proven players over new entrants without an established track record. Moreover, private capital is increasingly coming from family offices and high-net-worth individuals rather than traditional private equity.

Carter noted an anticipated growth of 8-10 percent in reinsurance capital during 2024, but warned that this capital is being more strategically deployed.

This selectivity reflects a broader move away from heavy catastrophe exposure, with investors seeking diversified portfolios in specialty lines.

“We’re seeing a shift where people want to de-risk from cat and focus more on specialty lines. It’s a very interesting evolution,” Carter said.

Consistency and track record: key to capital attraction

Echoing Carter's comments, Cloutier confirmed that the shift towards capital selectivity aligns with his own experiences at Aspen.

"Investors are looking for a track record and a story that demonstrates returns commensurate with the risk they’re taking on," he said.

Cloutier acknowledged that while there may not be a flood of new businesses entering the sector, capital remains interested in property and casualty risks.

"We see a great deal of interest from capital markets in the P&C sector today, but it’s all about having the right story to tell, the right track record, and the right approach to risk," he said.

Optimising relationships in a shifting market

The interview also addressed the potential mismatch between reinsurers and buyers, particularly in light of changes in retention levels. When asked about this, Cloutier downplayed the notion of a significant disconnect. "There's always a trade and negotiation, but both buyers and sellers are working towards the same goal—optimising economics for their shareholders," he said.

Carter agreed, emphasising the importance of long-term relationships, particularly if the market sees a downturn. "Reinsurers will always gravitate towards companies with long-standing relationships and trust. The value of those relationships can’t be underestimated," she said.

Increased retentions and shifting risk appetite

The discussion also explored the rising retention levels among cedants, with reinsurers moving higher up the program structures. Carter pointed out that reinsurers are increasingly weighing risk against reward, with many opting for higher attachment points.

"Are we getting enough value from the reinsurance we’re buying? That’s the question everyone is asking," she said, adding that with $60bn in H1 losses alone, companies are moving away from attritional losses and toward more profitable lines.

Carter also touched on the importance of understanding casualty risks, particularly in the US.

"There’s a big concern about reserving adequacy, especially in the litigious US market. It’s something we all need to keep an eye on," she said, highlighting the growing pressure on insurers to manage the tail risk associated with long-tailed liability lines.

Innovation and Lloyd’s Future Focus

Towards the close of the conversation, the focus shifted to Lloyd's and its ongoing efforts to maintain discipline while encouraging innovation.

Both Carter and Cloutier praised Lloyd's recent performance, particularly the A+ rating from AM Best, and discussed the importance of new, innovative products in the market.

"Lloyd’s has done an incredible job in recent years. It’s about maintaining that discipline and continuing to optimise portfolios," said Cloutier.

Carter added, "There’s so much innovation coming through, whether in climate resilience, cyber, or parametric products."

Carter particularly noted the first parametric syndicate launched at Lloyd’s earlier this year as a sign of the market’s innovative drive. "People are continually trying to find new solutions to the big gaps in the market, and Lloyd’s is leading the way in many respects," she said.

Watch the 19-minute video with Aspen’s Mark Cloutier and Guy Carpenter’s Vicky Carter to hear more about the key factors shaping dynamics in the current reinsurance market.