Hurricane Ian
Getting there from here: what now for January 1?
“Best-in-class talent continues to be attracted to the Bermuda market.”
Jonathan Davies, Lockton Re (Bermuda)
While carriers quietly assess the impact Hurricane Ian will have on their 1/1 renewals, we asked two brokers to give us their take on the state of play.
Jonathan Davies, chief executive officer, Lockton Re (Bermuda)
It is well documented and openly discussed through recent conferences and client/market interactions that we are collectively anticipating a challenging market going into 2023 for reinsurance and retrocession across class-specific and composite client solutions.
Hurricane Ian has added to this dynamic, the effects of which aren’t yet fully quantified, and that follows an active year of attritional losses, financial market uncertainty, the impact of inflation on portfolios, ongoing discussions surrounding climate change, secondary perils, and the ongoing war in Ukraine.
Each class of business will need to navigate these challenges, all of which will impact the trading environment in Bermuda. Solutions will be found for clients, which although challenged, largely remain well capitalised.
The Bermuda market has been a key thought and product leader across P&C for years and we will see this continue and broaden further across specialty lines into 2023. Best-in-class talent continues to be attracted to the Bermuda market, which drives the Island’s ability and desire to adopt a progressive solution-focused approach with its client base.
The interaction of supply to demand will be an important component to manage and clients will look to enter the market as soon as possible in formalising those renewal exchanges, following the broker-led interactions between existing and potential new counterparties. The relationships established over years of trading and the transparency of data exchange will be crucial as underwriters focus on their portfolios and the coverage, terms, and conditions offered.
The brokers’ role has never been more critical in helping clients navigate their respective markets, and their ability to proactively service clients and collaboratively interact with markets could be a performance differentiator.
Lockton Re’s uniquely organised Bermuda operation has the capability to service both Island-based clients and support Lockton Re’s global client offering with Bermuda-based expertise.
Our global connectivity, local knowledge, and broad skillsets allow us to talk to clients across all integrated disciplines including retro, property, casualty/financial lines, healthcare, marine, energy, aviation and other specialty lines such as, but not limited to, climate, cyber, and terrorism.
“Cedants have been evaluating the impact of inflation within their own risk tolerances.”
Lara Mowery, Guy Carpenter
Lara Mowery, global head of distribution, Guy Carpenter
September is often a perilous month for those exposed to the threat of hurricane risk and this year we have once again witnessed devastating destruction. Catastrophe events are first and foremost human tragedies and our hearts go out to all of those impacted by the significant number of events in 2022, including Hurricane Ian. The numbers are still too fresh to be accurate, but by all accounts, 2022 will be a record-breaking year.
The confluence of strong headwinds including catastrophe losses, continuous unpredictability around loss trends driven by entrenched inflation (both core and social), the Russia-Ukraine conflict, climate change, and supply chain issues means now, more than ever, the re/insurance industry must continue to evolve and adapt to meet the changing nature of risk.
A healthy and functioning reinsurance market is critical to the global economy. Bermuda companies have been central to the growth and innovation the catastrophe market has provided over many past crises. According to the Association of Bermuda Insurers and Reinsurers, Bermuda-domiciled companies have paid out $209.6 billion to US policyholders and cedants for large catastrophes, property and casualty losses, and life insurance claims during the five-year period from 2016 to 2020. Bermuda companies’ depth of experience in navigating extreme challenges will be essential in coming months.
Prior to Ian, the market was already facing a difficult path. Heightened catastrophe experience over the past six years has been at least in part a catalyst for some reinsurers to reassess their exposure to perceived escalating volatility. At the same time, inflation has materially impacted portfolio valuations and, headed into January 1, a measurable increase in exposures was inevitable, while appetite to assume this risk was curbed.
Adding to this dynamic, cedants have been evaluating the impact of inflation within their own risk tolerances, thus their desire to buy more protection has been materialising. Estimates of this increased demand vary, but a range of $20 to $30 billion globally was likely reasonable.
The magnitude and timing of Hurricane Ian will now further exacerbate both the supply-demand imbalance and the market evaluation of catastrophe exposure management under current conditions. Claims payments will impact 2022 earnings and uncertainty over ultimate losses will tie up additional capital for some period of time. This comes during a period of broader financial market volatility, adding additional complexity.
So where does the sector go from here? Positively, these risks have not been hidden and 19 consecutive quarters of primary rate increases have created a stronger position to grapple with the realities of today’s environment. In addition, at July 1, 2022, the Guy Carpenter Global Property Catastrophe Rate on Line Index grew an estimated 15 percent, from the January 1 figure of approximately 11 percent. This marks the fifth consecutive year of increase in the index.
The details are nuanced, but the realities of a hardening market are not unknown in the re/insurance sector. And, while the aforementioned drivers of uncertainty are likely to culminate in a difficult January 1, the industry has navigated significant market challenges before. Those participants that step up to provide catastrophe capacity will benefit from the materialising possibilities created by today’s ongoing complexities.
Image Credit; Shutterstock.com / Leonard the food guy
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