“As we look forward to 2022, our fortress balance sheet provides us with great flexibility to create value for shareholders.”
Kevin O’Donnell, RenaissanceRe
CEOs set out their stalls amid cat losses and rising rates
APCIA is taking place just as many of its members reveal their third quarter results—and amid the expected cat losses the focus has been quite keenly on the accompanying comments of the chief executives who have offered their views on the trajectory of rates in the industry, among other things.
Possibly the most revealing—and bullish—comments were made by Chubb chief executive officer Evan Greenberg who told an earnings call that despite rate hikes showing signs of moderating, insurers should enjoy continued premium growth and margin expansion for the foreseeable future.
“Growth and margin expansion are two trends that will continue,” Greenberg told the teleconference. “We continue to capitalise on broad-based and favourable market conditions and improving economic conditions. All our businesses did well or are improving.” Bullish indeed.
Some of the executives of more reinsurance-focused businesses took a slightly more cautious view, hedging their bets a little based on the opportunities available.
Kevin O’Donnell, president and chief executive officer of RenaissanceRe, was forced to talk more about the volatility of its results, but the robustness of the balance sheet after cat losses meant it posted a $450.2 million net loss for Q3 2021.
“As we look forward to 2022, our fortress balance sheet provides us with great flexibility to create value for shareholders. We believe we will have ample capacity to renew existing risk and underwrite new opportunities if sufficiently profitable, but we are equally motivated to return excess capital to shareholders at what we consider very attractive multiples,” O’Donnell said.
AXIS president and CEO Albert Benchimol was feeling more confident after the company returned to profit in the third quarter of 2021, turning around the small loss it reported in the same period the previous year, thanks to its reduced exposure to natural catastrophes.
“AXIS generated net operating income for the quarter, and our lower market share of the events demonstrates the progress we’ve made in reducing our net exposure to catastrophes,” Benchimol said.
“AXIS is well positioned in key specialty markets and we’re increasingly confident that favourable conditions will continue through 2022 and probably beyond, providing us with an attractive path to further profitable growth.”
Everest Re Group also swung to a loss during Q3 2021, but CEO Juan Andrade praised the firm’s “outstanding top line premium growth” across both insurance and reinsurance businesses, citing new business growth, strong renewal retention and a continuing favourable pricing environment.
“We achieved outstanding top line premium growth across our insurance and reinsurance businesses, continued to improve the attritional profitability for our insurance division, remained focused on risk appetite discipline and the diversification of our business, demonstrated strong expense management, delivered excellent investment income results, opportunistically reduced our cost of capital, and returned capital to our shareholders,” Andrade said.
Longer stories covering these results can be found here:
Rate hikes shield reinsurers from climate change: Fitch
“We expect double-digit percentage premium rate rises for property catastrophe cover in 2022.” Fitch Ratings
The global reinsurance outlook is improving for 2022 as higher prices are making the sector more resilient to the effects of climate change on natural catastrophe claims patterns, Fitch Ratings has stated in commentary on the renewals published on October 26.
Fitch said it believes that reinsurers’ plans to continue raising premium rates should contribute to stronger profitability and an improving sector outlook.
“This is largely due to increasing natural catastrophe claims linked to climate change,” it said.
“Prospects of a strong economic recovery and lower COVID-19 pandemic-related losses were also key,” it added. It warned that 2021 was likely to be one of the five costliest years on record for reinsurers.
“We expect double-digit percentage premium rate rises for property catastrophe cover in 2022 due to the excess losses in 2021 and the prospect of higher natural catastrophe claims frequency and severity in future.
“This would make 2022 the fifth successive year of price rises. The price increases should help to bolster the sector’s underwriting profitability as they gradually feed into reinsurers’ underwriting margins,” Fitch said.
Noting that higher prices would make the sector more resilient to the effects of climate change, it highlights the role of insurance-linked securities.
“The growth of catastrophe bonds to pass risk directly to investors could also become an important factor to mitigate the sector’s exposure to climate change risk in the coming years,” the analysis stated.
Read more here
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2021 investment in insurtechs surpasses £10bn
“VC investors may be driving the increase in deals and their accompanying hefty valuations.”
Global funding into the insurtech sector of $3.13 billion in Q3 2021 has pushed total year-to-date funding above the $10 billion mark, which is double the prior year period total as venture capital (VC) investors continue to flood the zone, a quarterly insurtech briefing from Willis Towers Watson has shown.
The Q3 tally, while down from a one-off peak of $4.82 billion in the prior quarter, still represents a strong gain on all prior periods in a visible growth streak dating back to at least 2018.
Deal numbers rose only 9 percent year-on-year to 113, but the number of mega-rounds above $100 million rose to 11 to account for more than half of total funding (down from nearly 70 percent in the record Q2, 2021).
“The growth of global insurtech investment over the past decade has been significant, but the stark pattern is a concentration of the much for the few,” Willis Re’s global head of insurtech Andrew Johnston was quoted saying. Plenty of startups are left unfunded, he indicated.
Early stage funding is growing at a faster pace. A record $630 million in Q3 on 113 deals brings the nine-month year-to-date tally to $1.52 billion, a 118 percent increase on the prior year period and a 73 percent increase over full-year 2020. Average early round deal size shot up to nearly $12 million in part as seed and angel rounds slip to a low dating back to Q2 2020.
VC investors may be driving the increase in deals and their accompanying hefty valuations, report authors write of the “staggering” presence of VC, corporate venture, super angels and growth equity in the deal mix.
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More ILS will be needed to support rising cat losses: S&P
“Some 15 percent of total reinsurance capital is sourced through ILS issuances.” S&P Global Ratings
Reinsurers are increasingly relying on third-party capital to support their retrocession needs, in which they transfer risks they have assumed to other counterparties, according to a new report by S&P Global Ratings.
The report, “Reinsurers’ Use Of ILS Is Set To Increase Amid Rising Catastrophe Losses”, released on October 28, showed that some 15 percent of total reinsurance capital is sourced through insurance-linked securities (ILS) issuances, while the share is increasing significantly within the retrocession market.
The rating agency said it expects ILS to increase its market share over the next few years as innovative new issuances address new risks, such as cyber, climate change, and environmental, social and corporate governance factors.
“In 2021, they ceded about 50 percent of their exposures at a 1-in-250 return period through collateralised instruments, such as ILS,” said S&P Global Ratings credit analyst Maren Josefs.
“The more peak exposures the reinsurance market transfers to a broad range of ILS investors, the better for the stability of the system and the growth of the market.”
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