What is SiriusPoint’s reinsurance focus for 2022?

Since we launched in February, our focus has been on laying the groundwork for a profitable and sustainable reinsurance portfolio. Our focus for 2022 will be on building on that profitability and stabilising our offering.

As we progress with stabilising our core book, 2022 will see us continuing to work closely with clients and brokers to develop opportunities in niche specialty lines where we have been building on our existing expertise and talent to truly differentiate our offering.

At the same time, we want to continue to develop our existing business and partnerships and leverage the relationships we have built up over decades with clients and brokers across the globe.

Where are your key ambitions in Europe?

We have a long-established presence in the European market which is a valuable differentiator as a new company. With this established platform, we have the ability to focus on opportunities as they arise in response to market conditions, working with our clients and their needs. Companies like ours are going to need to deliver more specialised, creative and targeted reinsurance solutions.

One example of that is how globally our group has added to our existing underwriting talent over the last several months. By focusing on and enabling internal expertise, we want to get closer to clients and understand their requirements, offering collaborative, innovative approaches to new and existing challenges.

With this in mind, we have established an entrepreneurial culture. We want our underwriters to be proactive in seeking new opportunities—leveraging the extremely valuable long-established relationships we have across our international platform and forging new ones, knocking on doors and thinking about creative solutions and structures.

What are main challenges reinsurers are currently facing?

There’s been a dramatic increase of losses in the world over the last few years especially coming from the so-called secondary perils. In the last few months, we’ve seen dramatic flooding in Europe with the tragic loss of lives, but also the significant precipitation resulting from Hurricane Ida in the US. Other catastrophe losses around the globe have put pricing of catastrophe business and climate change in focus—not just in Europe.

This fundamental change is one of the main challenges we are facing as reinsurers internationally. Frequency and severity losses are not limited to perils such as earthquake and wind, but extend to perils such as flooding, hail, drought, and wildfires. The frequency and the severity of these losses means that the assessment and pricing of the risk has to change.

We also see dramatic increases in repair and construction cost exacerbated by demand surge. Altogether these are different challenges from managing a traditional so-called hardening market—it’s re-evaluating pricing models and taking into consideration, among other factors, the consequences of climate change going forward.

The changes we see in exposure and risks mean that reinsurers will be adjusting models, re-evaluating risk and their pricing, in conjunction with the January 1 renewals.

What is the view of EU insurers on the changes planned by the European Commission on the solvency rules for insurers?

I suspect that there may not be a consistent view among “EU insurers” of changes to solvency rules. The original regulation, while fundamentally risk-based, reflects some compromises to address uniqueness of local market and prior experience suggests that any changes to the rules will be well met by companies in some countries, less so by others.

The positive ambition to help repair an economy hit by COVID-19 and to meet climate goals without eroding policyholder protection will be acknowledged by insurers but, by its own admission the European Insurance and Occupational Pensions Authority noted in a Q&A on the proposals that overall, the financial position of insurers was not significantly affected by the COVID-19 crisis and, despite operational challenges, no major disruptions in the sector were observed.

While it would be remiss to say that there is no risk of insurance company insolvencies following COVID-19, it seems the regulatory response to the pandemic has been fluid. But ultimately, it is also a resource-straining exercise to implement process and calculation changes for what is obviously a healthy and well-capitalised sector.

What is your assessment of what the 1/1 renewals will look like?

We cannot talk about the 1/1 renewals without speaking about the impact COVID-19 will have on reinsurance treaties. There is still so much uncertainty around the true impact of this unprecedented pandemic. So far, the majority of renewals have not taken into consideration pandemic-related losses, with discussions still ongoing about communicable disease exclusions.

The market is beginning to see more clarity around the ultimate losses, but there still needs to be a realignment around pricing for certain lines of business—it’s fair to say that the pricing pendulum is not swinging as hard as it has done in the past. Proportionate and appropriate adjustments to reinsurance treaties are expected for the 2022 renewals.

This is not just because of COVID-19. The flooding seen in Europe generated historical losses, and Hurricane Ida resulted in considerable losses. The constantly shifting quantity of losses is having a huge impact on clients and businesses, resulting in a greater need for high-quality reinsurance protection.

Frequency and secondary perils are increasing—how is that affecting availability of capacity and pricing?

With the coronavirus pandemic occupying news headlines over the last 18 months, many natural catastrophe events that caused massive insured losses did not get the attention they would have received in previous years.

Natural catastrophe losses across the globe have taken a considerable toll on companies in our industry over that period, highlighting the dramatic increase of secondary peril losses in the world. Just in 2021, global industry losses for the year to date are likely to be in excess of $80 billion, highlighting the significance of this challenge to insurers and reinsurers.

The industry urgently needs to take the initiative towards learning more about secondary perils. The frequency and the severity of these losses fundamentally necessitates/requires the evaluation and the pricing of risk to change. SiriusPoint, like all reinsurers, will continue to play a role in building resilience in the face of this threat.

It is clear that the industry needs to re-underwrite select risks, especially flood. Flood model uncertainty is high and insufficient reinsurance premiums may have been charged due to these perils being misjudged as “non-peak”, and therefore added to coverage without sufficient premium for the risk.

As a priority, the industry needs to implement price adjustments to accommodate the impact of climate change on those secondary perils. What is required here is the re-evaluation of pricing models to take into consideration the consequences of climate change.

After recent hardening, has rate adequacy now largely been achieved?

On the primary side, the market has seen a global hardening across essentially all geographies and all lines of business—including casualty, aviation, space, property, commercial, marine, and credit. I would expect to see those levels remain in place. There has also been a tightening in original terms and conditions.

Therefore, on an overall basis we are probably at a level where rate adequacy has been achieved in primary markets. That said, one size never fits all.

The industry tends to have a short-term memory, and this will require continued discipline, and continued focus for everyone. Rate increases are still expected in areas where losses have not yet been accounted for, for example, in areas where there have been COVID-19 claims, potentially, where they haven’t been priced into renewals. However, we are in a fundamentally changing world where capital is a flowing commodity.

Meanwhile, we are seeing some stabilisation in terms of loss picks that are occurring globally—at least in terms of the size of the loss. Without question there will be cases of arbitration and litigation, because there is still so much uncertainty. The important questions for us as a market, and as an industry, are going to be how we move forward and how we learn from this.

What lessons do we as reinsurers take with us into the future? How do we manage long-standing relationships, that have been consistently loyal and profitable, going forward? Those are going to be the most interesting questions as we approach the 1/1 renewals.

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