NEWS
Now is the time to invest in reinsurance
Surplus lines carriers are reaping the rewards as admitted carriers withdraw capacity in certain areas.
Amid a period of uncertainty for US insurers grappling with a myriad of challenges including social inflation, surplus lines carriers are reaping the rewards as admitted carriers withdraw capacity in certain areas.
That is the perspective of Kaj Ahlmann, the former chairman, president, and chief executive officer of Employers Reinsurance. and a past chair of the Reinsurance Association of America, who was speaking to Monte Carlo Today.
Ahlmann, who is also a director of the American Institute for Chartered Property Casualty Underwriters and RLI Corporation, a specialty property and casualty insurance and surety bond company, said that while some insurers are doing well on the back of a hard market, others are struggling.
“On the property side, we are clearly in a hard market and many insurers on that side seem to be doing fairly well. The latest results look good,” he said. “But it depends on the line of business.
“Some personal lines in the US, particularly automobile, are in trouble. People are concerned about inflation, especially so-called social inflation, where the courts are increasing awards following verdicts all the time. That is why the surplus lines market is doing well, because it’s easier to get the price required.”
In the US, admitted carriers, or standard market carriers, must get approval for rate increases from each state’s insurance department. This is often a lengthy process with push-back if the increases are deemed excessive. In contrast, surplus lines carriers are exempted from state rate and form filing requirements.
“On the private equity side there’s a lot of capital sitting out there.”
Kaj Ahlmann, Employers Reinsurance
“It is not regulated the same way; you don’t have to go to the insurance department and get permission for rate increases. In some places, say here in California, where there’s been a lot of wildfires, some of the admitted insurers are pulling out of that market because they can’t get the rate, they feel they need.
“So, they pull back their capacity and then the only option is the surplus lines market. But that also means much higher rates. I’m also in the wine business. Some businesses like ours have seen their premiums increase by a multiple of five. That’s a little problematic if you’re running a small winery,” Ahlmann said.
Turning to the reinsurance side of things, he believes now is the time for new capacity to enter the industry—and cannot understand why it is not. Historically, hard markets have tended to have a single driver, which was always a big loss, rates have spiked, then capacity has come in, rates have softened again.
Yet new capacity does not seem to be entering in any meaningful way, which Ahlmann cannot understand.
“On the private equity side there’s a lot of capital sitting out there. Some have invested in the distribution side, the brokerage side, the managing general agent space, but you don’t see it on the carrier side. It is different from what happened after 9/11 and after Hurricane Andrew.
“It seems as if they don’t want to take risk directly—or not via a balance sheet. I don’t have a good answer as to why that is. It does seem that now is the right time to get into reinsurance.
“I have been asked to look at a couple of opportunities. Maybe there’s something bubbling out there. But now is the time,” he concluded.
Main image: Shutterstock / Toa55
