Gallagher Re is drawing attention to the fact that the reinsurance market is bucking past patterns: New entrants to the reinsurance market have failed to materialize, despite current hard market conditions.

“Past periods of tightening reinsurance market conditions have led to start-up reinsurers coming onto the scene,” the company states in its paper entitled It’s a Hard Market – So Where Are All the New Entrants? “Arguably, it is the strongest and most synchronized market hardening the reinsurance market has seen since 2001,” they add. “So why doesn’t’ the 2023-2024 hard market fit the pattern?” 

The reinsurer goes on to identify four reasons for the market’s lack of new entrants in the past 18 months. Among them, they say there is no actual capacity gap for new entrants to fill. “Looking at the reinsurance market as a whole, there has not been a capital shortage,” they write. “The current cyclical upturn has been earnings-led.”

They add that skepticism remains regarding the structural profitability of the global reinsurance sector, although this changed somewhat in 2023 when primarily insurers largely covered that year’s natural catastrophe burden while those losses at the reinsurance level generally came in below budget. “On the whole, 2023 was a banner year for reinsurers,” they write.

Concerns about market duration are the third reason Gallagher says the market’s makeup is unlikely to change. “In our view, the lack of new entrants stems not only from investor skepticism about structural profitability, but growing questions about the duration of the current upturn.” 

Finally, they say across all industries, private equity is “keeping its powder dry,” with private equity deal activity in the financial services sectors, including the reinsurance sector, declined by 19 per cent in 2022 and a further 64 per cent in 2023 by deal volume. (This, according to KPMG data cited in the whitepaper.)

They conclude, saying one thing that could extend the reinsurance market’s upturn is if reserving issues in casualty lines become more widespread. “Some reinsurers have already pulled back capacity here. If that were to accelerate, new entrants and their backers might spot an opening,” they write. “Possibly also, the environment for private equity to invest would be easier.”