ROUNDTABLE: REINSURANCE
HOW WOULD YOU CHARACTERISE MARKET CONDITIONS ON THE PROPERTY CAT SIDE?
“The market has certainly hardened more.”
Conor Gaffney
Conor Gaffney: The 1/1 and 1/4 renewals were the first indicator that buying conditions would be tougher than any time in recent history. A number of coverages were short placed , which historically would have been oversubscribed.
This trend has certainly continued based on what we’re seeing now in terms of the 1/6 and 1/7 renewals. The market has certainly hardened more over this period.
Brad Adderley: When was the last time we saw a market like that? Where people are struggling to place normal business? For years we’ve been hearing about soft markets, worsening terms and conditions, yet everything has suddenly changed. Why is that?
“There is a complete capacity crunch.”
Peter Bell
Gaffney: It is at least 15 years since that’s been witnessed, particularly on some of the nationwide carriers who have big core relationships with reinsurers yet couldn’t get their placements filled. I think it’s a sign of what is going to happen in the mid-year and maybe year-end renewals.
Peter Bell: There is a complete capacity crunch, especially in Florida; that hasn’t happened for a very long time. I’m not quite sure what’s going to bring the market back again. It’s going to be a harder market for the next couple of years.
“There are some great stories out there.”
Brad Adderley
Adderley: Historically, this has triggered reinsurers to launch in Bermuda. You just mentioned people can’t place the risk. Do we think then someone will come to the market and say “I’ll put a billion dollars in and I’m going to write only cat risk. Rates are going up, terms are getting better; I’ll take a punt for three years or five years”.
Tim Mardon: It’s difficult to get a rating to do that now. You can do it fully collateralised, but to get an AM Best A- rating would not be easy. I don’t know how keen they’d be to support that monoline strategy.
Bell: It’s more difficult to raise money, whether for insurance-linked securities (ILS) or a rated balance sheet, especially for new entities.
“To get an AM Best A- rating would not be easy.”
Tim Mardon
Adderley: I would say some clients struggle, but there are some great stories out there. People who have raised money quickly. Most people would start off with $200 million from a third party.
Gaffney: We can’t forget the impact of macroeconomic factors. Significant increases in inflation will impact so many different lines of business. We’ve got social inflation and commodity price inflation, now coupled with a rising interest rate environment. When that happens, investors have a much greater opportunity set to consider.
They might decide to adjust asset allocations to alternative asset classes (such as ILS). So while it might have been easy to raise capital a couple of years ago, the dynamics of the market now are very different.
“There has already been a shift of sentiment.”
Jerome Halgan
Adderley: If it’s that hard to raise capital, rates are going up, people have been burned, how early are people going to do the renewals? If what happened in June was so bad, will brokers be coming to you guys even earlier?
Jerome Halgan: It greatly depends on what happens during the wind season. Over the past few years all the losses have been small to mid-sized, with an above normal frequency of $10 billion to $25 billion events which have hit insurers’ profitability.
The area of the market that has not been hit is the one covering remote Industry losses which would have been hit with events such as Katrina or Andrew. >>>
“How early are people going to do the renewals?”
Brad Adderley
<<< That has been perceived as a pocket of safety and is where a lot of the capacity has been migrating of late (particularly cat bond investors). If that pocket gets hit this summer, its perception as a safe place goes away and you have a very interesting market for the year-end and forward.
There has already been a shift of sentiment in the market conditions with the June and July renewals being markedly harder than it was at 1/1 and in fact harder than it has been in quite a long while.
Video on previous page courtesy of Adobe Stock / Dudarev Mikhail Image courtesy of Shutterstock / i am adventure
