NEWS
Inflation dominates renewal talks
There is a chorus of rate demands from reinsurers, says Alps CEO David Bell.
Inflation has come to dominate renewals negotiations, even for liability lines demonstrably distant from the runaway inflation readings that have dogged short tail property, David Bell, chief executive officer of legal malpractice insurer Alps Insurance, told APCIA Today.
Bell calls his business line “the shallow end of the susceptibility pool” and believes high inflation should not severely impact his business. Yet he admits his renewal talks with his reinsurers are dominated by inflation worries.
“There’s no escaping it—there is a chorus of rate demands from reinsurers,” Bell said, adding that most conversations result in the same point.
“The solution always leads to: ‘you have to get rate and you have to protect yourself from the unknown by getting rate’,” he said.
Calculating the impact of inflation is never easy, he admits. Pricing today for medium and longer-tail claims well down the road in unfamiliar inflation territory is a risk class of its own.
Bell compares long tail pricing decisions to Fed monetary policy. Every Fed move seeks an economic impact several quarters down the road, yet each is taken without any knowledge of how more recent policy moves have already changed the playing field.
“Calculating the impact of inflation is never easy.”
David Bell, Alps Insurance
Bell has a rather consensus view that the Fed shows “a pretty dismal track record”.
For long tail lines with an even greater delay to impact, insurer overreaction on rate may please reinsurers, but it can easily cost market share. Under-reaction, on the other hand, in the worst-case scenario, will cost capital.
Bell implements what he considers a “hyper-data-intensive approach” rendering better loss picks and a stronger feel for where inflation might lurk in the books. Finally, he corrects the models for what he calls COVID-19-era anomalies.
“In the absence of that type of data evidence to show reinsurers, I suspect you’ll be left with the renewal pricing implications of their own assumptions,” Bell said. “Those are likely to be conservative.”
If relief is possible, it’s in the capacity. Bell testifies to a palpable gain from the shift by some reinsurers away from property in the name of earnings stability. “The appetite has expanded,” he said. “I wouldn’t say a transformational increase in new liability reinsurance capacity, but it has been enough.
“I have definitely seen a clear correlation between reinsurer capacity expanding beyond property and into liability, creating more supply, which has driven down rates.”
Main image: Shutterstock / Andrius Zemaitis
