NEWS
Vanishing subscription market means gaps for cedants
Reinsurers are applying terms and conditions specific to their appetites and agendas, says SiriusPoint’s new head of ceded reinsurance.
Demand for property capacity still outstrips supply and new capital is shying away from entering the market. This means a dislocation is again likely in the year-end renewal, forcing both buyers and reinsurers to reshape and recalibrate their portfolios.
That is the view of Habib Kattan, global head of ceded reinsurance at SiriusPoint, who says he expects the property market to continue to be challenging. “We expect a continued dislocation between demand for ground-up and frequency protection, versus supply of high excess catastrophe reinsurance,” Kattan told Monte Carlo Today.
“We have reshaped our inwards property portfolio over the last couple of years with a greater focus on peak peril US catastrophe risk. We will continue to be disciplined, ensuring adequate attachment levels, and tighten contract wordings so that the coverage for the perils offered is adequately priced.
“We are recalibrating our portfolio to continue to provide, and even increase, capacity where we believe the returns are attractive. Our reinsurance-buying strategy will remain focused on managing volatility (earnings protection) and tail risk (protecting capital).”
Kattan took the reins as global head of ceded reinsurance on August 1. He was previously the global head of ceded reinsurance at Tokio Marine Kiln and, latterly, acted as an advisor on outwards reinsurance at MS Amlin. He has been tasked with establishing the strategy and structure of SiriusPoint’s global ceded reinsurance function.
He says that market conditions and evolving rate changes have been a driver for the company to reshape its portfolio. This has also meant reducing the number of reinsurers it works with on the property side.
“We will continue to reshape our inwards book.”
Habib Kattan, SiriusPoint
“We will continue to reshape our inwards book, and take advantage of market conditions,” he said. “While property reinsurance remains an important part of our portfolio, our business mix in insurance and reinsurance is much more balanced by specialty, casualty, and accident and health.
“We continue to focus on optimising our capital allocation to grow and shape the portfolio to match our return expectations and risk tolerances.
“On our property reinsurance, we have seen a reduction in our reinsurer panel, partly due to pricing issues and partly due to the restriction in available capacity. We have adapted our underwriting and buying strategies to optimise risk appetite and capital management.
“Reinsurance is core to our strategy across all lines, and outside of property we have a core panel of reinsurers who support our growing programme business. The landscape is continuously evolving, and we aim to be as nimble and as adaptable as our strategy and appetite will allow.”
A changing landscape
Kattan expects that the shifting landscape of reinsurance will start to change the dynamics around market competition. He believes that rated paper, for example, will continue to provide capacity at a price. In contrast, so-called total return reinsurers have seen collateral trapped and, as a result, have had a tough time raising new capital.
He acknowledges there have also been several high-profile exits from the market, which will inevitably change the landscape. “This will reduce the supply of capacity and whatever available capacity remains will go to the highest bidders,” he said.
“The subscription market across most reinsurance classes has all but disappeared.”
He agrees that inflation and social inflation continue to drive the hard market overall. In property specifically, he notes that record insured industry losses have had a significant impact on pricing and capacity, particularly in the US.
“Given changes in reinsurer appetite, much of the loss is being retained by the primary companies. As a result, the direct and facultative market is very buoyant with vast increases in rates, and we have seen several carriers withdraw from wildfire-exposed areas in the US.”
In the property reinsurance market, Kattan says, cedants we have seen two years of increases in retentions, tightening of contract language, and large increases in rates. He makes the point that many reinsurers are working in silos.
“The subscription market across most reinsurance classes has all but disappeared,” he said. “Reinsurers are applying terms and conditions specific to their appetites and agendas. This has meant that buyers are finding themselves with reinsurance programmes filled with gaps in coverage and terms.”
Meanwhile the property retro market is mimicking the primary property reinsurance market, other than the catastrophe bond space, where low loss activity, high attachment levels and issuer demand have contributed to increasing issuances, he said.
“Outside of property, we continue to see rate increases above loss cost in most classes of casualty and specialty business, although the pace of increase is reducing and, in some classes, D&O for example, rates are in decline.”
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