Guy Carpenter eyes expansion in credit and political risk market: Edwards

Portfolio diversification into specialty lines has fuelled recent growth in the credit and political risk market, although challenges linger around the sector’s reputation in the wake of the 2008 financial crisis, according to Guy Carpenter’s David Edwards.

Edwards, who serves as head of the broker’s credit, bond and political risk division, global specialities, told The Insurer TV that, despite assumptions, the most significant hurdles currently in the market are not driven by Covid-19 or heightened geopolitical risk.

“It’s a challenging market at the moment, but for reasons that people wouldn’t necessarily think. The biggest challenge we face as a market is what we believe is a lack of recognition of the significant improvement in stability and performance over the last 15 years or so,” he said.

“We had a very difficult time around the global financial crisis in 2008-09, with a lot of volatility in performance. Ever since then, the ability of the business to be more stable is a real testament to the work of the insurance industry. The challenge we have is, how do we recognise that?”

Edwards continued that there is a perception in the market that reinsurers’ skewed sense of volatility in the class is driving internal economic capital models to be higher than needed.

“There are new reinsurers coming into the class, starting with a clean piece of paper,” he said. “They don’t necessarily need to be bound by the thoughts that created internal capital models, say, 10 or 20 years ago. It’s going to be interesting to see what happens.”

Aside from its reputation among reinsurers and regulators, the market has proved to be “extremely robust” since 2019. Edwards noted that this was driven by the fact that credit, surety and political risk underwriters were already adjusting to an expected economic downturn when the pandemic began.

“At that point in 2019 it was already on a very risk-aware footing and, since then, it’s adjusted appetite very well to reflect the changing risk environment over this period,” he continued. “As a market that was thought to be probably one of the most exposed classes to what’s going on in the world in the last five years, it’s actually proven to be very strong.”

This includes a continued upward trend in capacity, with overall appetite for the market continuing to grow, particularly as (re)insurers have looked to diversify portfolios away from property cat into specialty lines.

As well as new capacity entering the class in search of diversification, existing players such as Guy Carpenter are also looking to expand into new products and geographies.

“We’re really focused on expanding the market and trying to develop new business wherever we can, especially in countries and products which are not currently a large part of the global market,” said Edwards.

“It’s really important for us to broaden our portfolio. The broader it is, the more sustainable it is for us as a business, but also for our reinsurers as well.”

Earlier this year, Guy Carpenter appointed Richard Chu from PartnerRe as managing director for credit, bond and political risk, with a remit to oversee new business development across the Asia Pacific region.

Chu has recently completed an inaugural treaty product in Vietnam, with Guy Carpenter looking at other countries across Southeast Asia to further support market development in the region.

“During this year, we’ve hired our first specialist colleague in the Asia Pacific region, and he’s really making great strides forward in terms of building business there,” Edwards concluded. “We’re really investing in those markets to develop skills and knowledge in local insurers to grow their business and diversify the portfolio.”