A perfect storm— in theory only

Describing increases in insurance rates, Chris Bonard, chief executive officer, Bermuda, of Inver Re, said there is a perfect storm in theory only.

“Rates can harden and you can charge whatever you want, but if people can’t afford to pay there’s going to be underlying impacts,” he said in an interview at RVS 2022 in Monte Carlo.

“There’s only so far you can push pricing before the consumer is worried about whether they can pay their gas bill before they pay their insurance premium,” he said.

Addressing macroeconomic trends, Bonard turned to interest rates, citing Florida is a prime example of their impact.

“You’ve only got to take a look at Florida’s renewal season at June 1—it was a totally different Florida today from the one we saw last year. We’ve seen a number of companies close down and a lot of debate with the regulatory authority,” he said, explaining that there isn’t enough insurance to insure all the homeowners in the state.

“You’re going to end up with a lot of uninsured losses. We’re seeing a shift as to where the risk is going and the big question is whether there is enough capital around to fix that? There probably isn’t,” he added.

With hyperinflation and interest rate growth, Bonard believes it’s a good time for alternative capital to take the strain. He explained that many are conducting book corrections and working out whether they want to be in the reinsurance space.

Bonard added that the reinsurance industry hasn’t made money for many years so the sector is probably going to enter a market of change and correction.

“The COVID-19 pandemic has caused issues around the global economy and inflation, which is now heavily factoring into every line of insurance, particularly natural peril,” he said. “Here we are, with huge unquantifiable losses, going into a renewal season that was already beginning to turn.”

Bonard also addressed climate change, adding that the Bermuda Business Development Agency is leading discussions on climate change and how the re/insurance industry be more responsive to it.

“Different areas of risk are going to come out. The insurance industry doesn’t invent new products very often—I think cyber was probably the last one and D&O before that. The re/insurance industry needs to start responding and understand that the world exposure has changed and is changing rapidly,” said Bonard.

He added that Bermuda is trying to put itself at the forefront of that, and take its position on the cutting edge of climate solutions.

According to Bonard, “the alternative capital world has woken up to an issue that everyone is talking about” and climate is always top of the list of questions from investors.

“If you’re writing a very heavy reinsurance catastrophe book, you’re probably not going to be as favoured as someone who is writing a balanced portfolio with a lot of specialty business,” he said.

“It’s going to create an even harder market for natural peril business and I think you’re going to see more of a push to more specialty business.”