NEWS
Time to address ‘issues kicked down the road’ at last renewal
1/1 2024 is ‘step two’ of major market shift after cat priorities dominated 1/1 2023, says SCOR’s Charlie Bartlett.
“You can’t unpick 10 years-plus of soft market legacy in one renewal. Everyone is aware that 1/1 2023 was only ever going to be step one; some issues have been kicked down the road—and must be dealt with in this year’s renewal.”
This was the view of Charlie Bartlett, deputy chief underwriting officer, Europe and Canada, Reinsurance at SCOR P&C, speaking to Baden-Baden Today. This year, he expects rates to again increase driven by a higher cost of capital and continued uncertainty and volatility.
“Price is always a topic, but it’s never considered in isolation. It needs to be looked at alongside structure, and terms and conditions,” he said. “Looking back to last January’s renewal, we couldn’t fix all the issues in one go. Inevitably, the market ended up focusing on the top of the priority list.”
This priority became cat business, and the focus was on structure and pricing. “Now we begin to look at some of the topics which are slightly lower down the priority list, but still very important.”
For Bartlett, definitions and ensuring that there’s a clear alignment of understanding on wordings is important. “Too often, we have thought we were aligned, and then a loss happens and we realised we weren’t,” he said. “That uncertainty or misalignment is not in anyone’s interest.”
The industry needs to look closer at clauses and potential exclusions such as strike, riot and civil commotion, which has come to the fore in Europe following events in France in the past summer, he said.
“We are not immune from the social inflation trends in the US.”
Charlie Bartlett, SCOR
Bartlett emphasised that more attention should be focused on trends in the property risk-exposed business. “We continue to see quite challenging performance, not driven by cat, but by increased frequency and severity of large fire losses,” he noted.
As a result of this, he expects “significant restructuring and strong price uplifts” for the risk excess of loss (XL) business in certain markets, most notably the Nordics.
For longer-tail business such as motor, he noted, the results have been poor for everyone over recent years as cedants have struggled to keep pace with inflation. “I’m sure that’ll be in the spotlight for many and certainly for SCOR,” he added.
SCOR will also be scrutinising its casualty portfolio. “It’s an international casualty portfolio, but in any non-US casualty portfolio you pick up US exposure. We are not immune from the social inflation trends in the US.”
He said SCOR would be working with its cedants to understand how they are underwriting that business, and how they’re pricing it.
Bartlett said that SCOR has made huge progress over the last year or so. “While it has not been easy, a transition that needed to happen is well under way,” he said.
SCOR’s biggest transition focus has been on climate-related frequency exposure, particularly so-called secondary perils.
“We will not grow our cat exposures faster than our non-cat.”
The experience of the past does not give particularly reliable signals for the future and the measures that SCOR has taken are “fairly obvious”, he said, referring to the need for cedants to increase retentions on cat XLs. This would allow “cat XLs return to the purpose of providing capital rather than earnings protection”.
He added: “It’s been about cutting back almost to the point of eliminating our remaining aggregate XL portfolio, and then managing the frequency exposure that exists within the rest of our property book.
“It’s been a market-wide thing, but SCOR has perhaps been among those pushing hardest for some of these changes.”
It has also adjusted its cat portfolio, meaning its cat exposures are less material compared to its non-cat book than they have been in the past, although Bartlett confirmed that SCOR’s appetite for cat remained stable.
“Irrespective of how attractive market conditions may become, we will not grow our cat exposures faster than our non-cat. We want to maintain the balance we have. But it’s a pretty stable picture and that’s a positive and reassuring message for our clients.
“The world around us continues to be volatile. The effects of climate change, which we began trying to address at the last renewal, have been felt across the world and across my region strongly over the course of this year. That reaffirms and validates the measures we’ve been taking.”
Main image: Shutterstock / Jim Barber