Having more capital means you can underwrite more business, but it does not magically turn a bad risk into a good one, says Peter Bell.

Bell, the chief executive officer of Everest Reinsurance (Bermuda) since 2021 and an employee of the company for 20 years, says Everest’s $1.5 billion capital raise in May will enable it to “lean into” the hard market and the strong renewal season.

Last September, Bell told Intelligent Insurer that he thought the market had gone from “hardening” to a hard market and that the trend had continued, with Everest seeing increases in rates in line with the industry average of about 30 percent.

He noted that the current hard market is different from its predecessors in that previous cycles had been largely caused by reinsurers lacking capacity; today’s companies are better capitalised, partly because of increased regulation.

“From an Everest standpoint, we see that there are legs in this and there will be for the next year or so,” Bell says. “It’s difficult to project further than that, because of how capital moves. But we definitely see that there’s room for growth. What it doesn’t do, though, is make a bad risk into a good risk.

“Part of the reason for the capital raise was to truly lean into this market, and take advantage of where we see opportunities. The bottom line is that, from an Everest standpoint, we’ve had 50 years of reinsurance business, we have a client base which is probably one of the, if not the, most extensive and strongest in the market. We’ve seen that we can leverage that going forward over the next couple of years.”

Like others in the industry, Bell attributes price increases to a variety of factors, including the poor performance of the market forcing a rethink on rates, high severity catastrophes, COVID-19 and inflation.

“Rates are definitely up, in all areas, and we see them at a point where that should give us the profitability we want going forward,” he says. “That’s really the reason why this capital raise is a massive plus for us.”

Diversification

While much of the focus in the sector has been on catastrophe pricing, Bell says Everest Re Bermuda’s book is more diversified, with property-cat and property income generating between 15 and 20 percent of the total.

“That’s probably a bit different from most others,” he says. “It’s not that we don’t see that growth—we can see growth in property-cat just by rate increases and with the capital raise—but it means we’re going to have a bit more room for manoeuvre on overall capacity.

“Over the last couple of years we’ve been able to look at our global clients more closely than we have before and have created better and closer relationships with them across all lines.

“It’s meant that our relationships with those guys—the biggest buyers out there—help us solidify what we had already. If it’s property-cat, casualty, cyber—whatever class we are in, it has helped move us forward.

“We’ve always had a big position. It’s now slightly bigger,” he says.

Still growing

While Everest Re Bermuda has reduced its property-catastrophe exposure, it has not stopped growing, with its income rising 50 percent over the last five years, an impressive result in a difficult market.

Some of that can be attributed to its growth in mortgage reinsurance, where it provides cover to cedants such as Fannie Mae and Freddie Mac and private mortgage insurers.

“Our growth has been in a number of areas, and mortgage is absolutely one area where we’re a leader,” Bell says. “Last year was a massive issuance, so we took advantage of that, because we thought it was a very good risk.”

Much of the growth has come in the last seven or eight years and, with lenders being more rigorous about screening borrowers since the 2008 financial crisis, it has been a good book. In 2022, many borrowers refinanced to get ahead of interest rate hikes which resulted in new issuances.

With risks of default coming from unemployment or severe health crises, Everest is watching the US economy closely and is cautiously optimistic about its resilience despite the interest rate hikes over the last 12 months.

Bell notes that many US mortgages are for 30 years with locked-in rates, which reduces the risk.

He adds: “At the end of last year, and going into the first quarter, we were cautious because it was a little bit uncertain. I wouldn’t want to be too optimistic yet but if you look at where the US economy is now, it’s probably in a better place than we had originally thought. We think it’s in a good place.”

After some initial caution, Everest is expanding its presence in cyber reinsurance, Bell says.

“Over the last year, we did a lot of work in the background,” he says. “We employed Catherine Rudow to head up our cyber practice. With all that work, we took a more fluid attitude, so I’d say we went from ‘cyber neutral’ to more ‘cyber positive’. Now we have a good position on it from a reinsurance perspective.”

Asked about growth prospects, he says: “At the moment we’re pretty positive about it. Will the market grow? We expect it to grow. If you look at the broker reports about where they see cyber in the next five to 10 years, there’s a massive increase. I don’t know if that’s all going to come to fruition, but we think it’s definitely a growing market.”

Bell pushes back at the idea that hackers will always be one step ahead, saying the amount of work companies have done to protect themselves should not be underestimated.

“There’s much more resilience in the way people protect against cyber attacks,” he says. “A lot goes on behind the scenes that makes it as good a risk as we think it is.”

Bell says Everest Re has seen growth in reinsurance for political violence: the war in Ukraine has focused minds and resulted in tighter contract wording, which has made it a better risk.

As for Bermuda, Bell is optimistic, praising how it has changed over 20 years from being known primarily as a property hub to being a market for multiple different classes.

“The other point is that the Bermuda Monetary Authority (BMA) is a strong regulator and that helps massively. One of the biggest reasons people stay here is the BMA,” he concludes.