26 January 2023Insurance

Guy Carpenter will grow on hard reinsurance market, but clearly lag rates

Guy Carpenter is on track for a year of strong revenue growth on the back of the hard reinsurance market, but won't track the headline rate gains as cedents respond to the market by retaining more risk.

“We expect a good year of revenue growth at Guy Carpenter,” the newly minted CEO of parent company Marsh McLennan, John Doyle, told his company's Q4 investor call.

But premiums from cedent-clients “won't track the rate increase” as primary insurers react to the hard market by holding more risk on their balance sheets, often through higher retentions.

“We expect it to be a good year for Guy Carp,” Doyle said.

Doyle shut down caller questions on commissions taken as the market hardened through the 1.1 renewals.

Part of the gap to the reinsurance market rate growth is getting picked by sister firm Marsh helping its clients into the captive market.

“Our captive management programme grew nearly double digit in the quarter and the year ... as our clients moved to retaining risk,” Marsh CEO Martin South told the call. “So we feel confident that the changing market is not going to damage our growth.”

Guy Carpenter CEO Dean Klisura said that cedents had not only agreed to raise retentions amid the hard reinsurance market, but had often additionally resigned from hopes for higher limit on the top side to cover the impact of inflation on insured values.

“In terms of buying more, it was cost prohibitive given the rating increases,” Klisura said of the 1.1 renewals. “Our clients were forced to take more risk and volatility on their balance sheets.”

Guy Carpenter's fourth quarter revenue of $171 million was flat to the prior year or up 5% when adjusted for FX. For the full year, Guy Carpenter’s revenue grew 8% compared to a year ago, or 9% in constant currency.

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