ROUNDTABLE: REINSURANCE
WHAT OTHER ISSUES ARE YOU SEEING?
“We are in a new part of the cycle.”
Brad Adderley
Brad Adderley: All the new tech classifications have been helpful. It is worth noting that all this activity means Bermuda is hiring people. All these companies are hiring two or three people and having to submit hiring plans that the BMA is asking them to meet in the first two years. That is really cool because that will grow new lines of business and new ways of doing things that will help fuel the insurance market.
We are in a new part of the cycle. We all saw consolidation and people lost jobs and now we have all these new startups hiring again. It is the circle of life. It keeps us sustainable as a jurisdiction.
In terms of the ESG reporting requirements, we haven’t seen pushback. It is certified and I wonder with ESG how many people were doing it beforehand. We’re doing internal policies but now the BMA is supporting and driving that change.
Peter Bell: Most buyers have to take what the market will give them. The good buyers will work that out early, come to the market early, and engage with reinsurers and get it out of the way. The rest will be scrapping it out much later.
“Buyers have to work out which way they’re going to go.”
Peter Bell
Adderley: A few years ago it was the reverse. The buyers were dictating terms, dictating pricing. Pricing was going down. It was a race to the bottom. I’m wondering now—are reinsurers doing the same in reverse or is there more nuance to it based on the risk?
Bell: It depends on the line of business. Property cat is different from casualty, from marine, from terrorism. Different lines act in different ways. The cat is going to be tougher just because there’s going to be a lack of capacity. Buyers have to work out which way they’re going to go.
Will they look to buy more quota share, but less excess of loss? It’s a roundabout but it’s going to be tough.
Conor Gaffney: We have rising reinsurance costs and rising retro costs. If the cost of reinsurance capital is higher than internal costs of capital, it doesn’t make sense for cedants to buy as much. So cedants could look to retain more. Also, in the cat space, if you cannot purchase sufficient limit using traditional products, you’re going to have to go down the route of buying some of the non-traditional products out there.
“We have seen a widening on pricing.”
Jessica Laird
Jessica Laird: In the capital markets, we have seen a widening on pricing driven by more companies looking to seek protection. There’s no simple solution to any of this.
Gaffney: Last year we saw buyers, especially the big players, starting to leverage their purchases. If larger cedants have a multi-class relationships with reinsurers and they’re short-placed on some of their property cat placement, they say to their reinsurers: “If you want to keep your positions on other lines of business, you’re going to have to facilitate lines on property cat”. I think that’s a trend that we are likely to see more in future renewals.
“It’s going to be very interesting.”
Tim Mardon
Adderley: I’m very interested after the doom and gloom for so long of rates going down, to see the reverse. I find it quite exciting to see it reverse. We might see more sidecars, be it a new vehicle or a new structure. Inflation will also be a massive driver.
Laird: Inflation will continue to drive pricing in the market. It is driving an increasing view of risk not just in Florida, but across the US and globally as well.
Tim Mardon: Our view is that even with no substantial losses areas such as retro are going to remain hard going into next year. There are fears over climate change and interest rates moving up, which also impact pricing. If you look at all those factors together, it points to the market continuing to be difficult and hard in the peak zones. If there are substantial losses this year, all bets are off for next year. It’s going to be very interesting.
“Finding talent is key to succeed and be able to grow.”
Jerome Halgan
Bell: We are in a good space, partly because of our diversification—we’re not just property cat. We do lots of other lines but markets are harder in many different places. So that’s good. The regulatory framework in Bermuda means capacity is drawn to it.
The property cat renewal will be very tight, which is good for us because we have capacity at the right price and the right time, but it’s going to be tough.
“1/1 will be a continuation of the hardening market.”
Conor Gaffney
Jerome Halgan: Reinsurance is a people-intensive business, so finding talent is key to succeed and be able to grow and address new opportunities. We’ve been able to grow our staff by a third over the past year and attract very high quality people. Bermuda is a good place for that to happen and Arch’s reputation is key, but we need to do even better.
As an example, although we’ve had a very active intern programme running for many years, this year we have doubled its size to give more opportunities for young Bermudians to be introduced to the reinsurance industry.
Gaffney: The macro headwinds of social inflation, commodity price inflation and rising interest rates are the concern. When you couple that with wariness of investors and stakeholders around whether we have a grip on climate change as an industry, it suggests 1/1 will be a continuation of the hardening market observed in recent renewals.
Image courtesy of Shutterstock / jvaruzzo
