The cost of coverage may have risen dramatically at the turn of the year but that does not mean the reinsurance sector is experiencing a hard market, delegates to the Convergence 2023 conference heard.

Lara Mowery is the global head of distribution at Guy Carpenter, the reinsurance brokers.

She said: “This isn’t actually a hard market because a hard market is a market where you’re trying to buy a product and you can’t get that product at any price – it’s just not there, not available.

“A lot of people commonly are referring to what we are in as a hard market. There has been a generational shift in 2023 in the way that property cat is viewed, and written, structured, priced, and so for a lot of people – and especially a lot of clients who are trying to buy that product – it does really feel like a hard market.”

She added: “The market that we’re seeing right now really isn’t necessarily about just scarcity of the product driving prices ‒ it’s about the fact that the perception of risk, and the way we measure risk and have to structure our product to respond to that risk, has changed significantly.

“The correction happened all at once and that has really created this dynamic of ‘OK, now we’re in a hard market’ but the drivers of it really are different than what we’ve seen in past hard markets. This isn’t supply/demand, it’s other things.

“There isn’t really a lack of capital in the space but there is a lack of willingness to deploy that capital.”

Ms Mowery appeared on the panel Hard Market, Resilience, Dynamics, Impact and Relevance at the conference, which is presented annually by ILS Bermuda.

She was joined by John Seo, co-founder and managing director of Connecticut-based Fermat Capital Management; Matt Wilken, chief underwriting officer at Hiscox Re and ILS; and Jessica Laird, head of Property Cat, Bermudian-based Nephila Capital.

The panel was moderated by Adam Champion, executive vice-president, Reinsurance and Capital Markets, Bermudian-based Inver Re.

Mr Seo said: “I always puzzle because there’s $100 trillion in capital in the world. There’s clearly enough capital in the world. Why is it not coming in?

“One of the things I believe in is that simply the cost of capital for insurers and reinsurers is being structurally reset. This is a once in a potentially even 50 year type of reset upwards.”

He added: “It’s kind of a hardish market. But it’s also a structural change. I don’t see that once this hardish market recovers or capital inflows, everything normalises, I don’t see it going back to the same baseline it held before.”

Mr Wilken said: “The idea of whether it’s a hard market or soft market – maybe we should get away from those terms and maybe we should call it disciplined market or ill-disciplined market. There was no doubt in my mind that there was an ill-discipline in the market.”

Ms Laird said: “There are lots of other asset classes that are simpler, easier to understand, more traditional, that are drawing capital with attractive returns right now. You are competing, not just within the capital stack of the reinsurance market, but also within broader financial markets to be able to bring that capital in.

“In the meantime, I think that’s the signal that’s being sent about how we need to think about not just rate but coverage and structure and all those other elements that will keep capital in the space, understanding and supporting a healthy active market.

“Whether we flow between hard or soft, I mean at some point when capital feels there’s excess profit they’re making sufficiently, capital comes in and we’ll see that softening.”