Alternative capital has driven property-cat prices down
Over the past 10 years, alternative reinsurance capital—capital from investors in the form of collateralised reinsurance, catastrophe bonds and reinsurance sidecars—has grown from approximately $28 billion at year-end 2011 to around $97 billion at Q2 2021, and now constitutes roughly 15 percent of total reinsurance capital.
That is according to a new report by Moody’s, called “Alternative capital embedded io reinsurers’ business models; growth restarts” published on September 13.
Once referred to by traditional reinsurers as “naïve” capacity, the report notes that alternative capital is now extensively used by reinsurers to lower their own total cost of capital, manage peak risk exposures, improve risk-adjusted returns and enhance their overall competitive positioning in the sector.
“The evolution of reinsurers’ business models to coexist with alternative capital is now virtually complete, with alternative capital a firmly embedded and growing component of reinsurers’ risk and capital management,” the report states.
“Although there are certain risks associated with reinsurers’ increased utilisation of retrocessional reinsurance, we believe that reinsurers’ overall credit strength has largely benefited from the incorporation of alternative capital into their business models.”
It notes that reinsurers’ business models have evolved as alternative capital has grown. “Although capacity from alternative capital providers has been a key factor in driving property catastrophe reinsurance pricing lower over the past decade, reinsurers’ business models have evolved to incorporate alternative capital as a key source of retrocessional reinsurance to manage risk and optimise returns.”
Read more here
Image courtesy of shutterstock.com / Sky Antonio
New MGAs are being formed ‘thick and fast’
The value of revenues earned worldwide by managing general agents (MGAs), managing general underwriters (MGUs) and coverholder groups (delegated underwriting authority groups) was around $12.5 billion in 2020, implying premiums intermediated by such groups in that year of approximately $100 billion, according to a ranking and analysis completed by Insuramore.
Placed a respective first, third, fourth and fifth in the worldwide ranking came broking groups Brown & Brown, Amwins, Ryan Specialty Group and Truist Insurance Holdings. Meanwhile, given disclosures made by it in advance of its planned public listing, classic vehicle specialist Hagerty may reasonably be assumed to have come second in the ranking.
However, the report noted, at a global level, the market for this type of intermediary (the MGA market) is a fragmented one. In 2020, the top five groups are thought to have accounted for a combined 18.2 percent of worldwide revenues, rising to 39.6 percent for the top 20, 56.9 percent for the top 50, 68.5 percent for the top 100 and 82 percent for the top 250.
By ownership, 55 of the top 250 groups in this space are classifiable as broker-owned, 28 as insurer-owned and the remaining 167 as independent (although many of these are backed by private equity firms). Furthermore, by type of insurance underwritten, 73 can be defined as specialist groups (MGAs underwriting a single product class or a small number of closely-related ones, such as cyber and technology E&O, or private auto and home) with the rest classifiable as multiline players.
Finally, by location, 145 of the groups are identifiable as based in the Americas (with 134 of these in the US), 90 in Africa, Europe or the Middle East (including 46 headquartered in the UK), and 15 in the Asia-Pacific region or Australasia.
Insuramore believes that there are around 1,000 groups globally in the MGA space adding up to approximately 2,000 individual MGA enterprises worldwide given that many of the larger groups own multiple MGAs.
Moreover, launches of new MGAs have been coming thick and fast in recent times; typically, such new entrants are seeking to take advantage of opportunities afforded by use of advanced technologies to bring about digital disruption in established market segments. On the other hand, the origins of some MGAs date back more than 100 years.
Read more here
Image courtesy of shutterstock.com / Jack Frog
US commercial insurance prices hike again in Q2
US commercial insurance prices increased again during the second quarter of 2021, according to Willis Towers Watson’s Commercial Lines Insurance Pricing Survey (CLIPS).
The survey compared prices charged on policies underwritten during the second quarter of 2021 to those charged for the same coverage and quarter in 2020 and found the aggregate commercial price change was just above 6 percent.
Data for nearly all lines indicated significant price increases in the second quarter. Excess/umbrella still showed the largest price increases, while commercial auto, property, and directors and officers (D&O) liability increases were near or above double digits. Workers’ compensation continued to indicate a slight price reduction, in contrast to nearly all other surveyed lines. Reported price changes for account sizes were all below double-digit increases except for specialty lines.
“The rate of price increases has moderated again in the second quarter while still elevated versus historical norms.
This is largely driven by significantly lower price increases for excess/umbrella and D&O liability than previous quarters,” said Yi Jing, director, insurance consulting and technology, Willis Towers Watson.
CLIPS is a retrospective look at historical changes in commercial property & casualty insurance (P&C) prices and claim cost inflation. A forward-looking analysis of commercial P&C trends, outlook and rate predictions can be found in Willis Towers Watson’s Insurance Marketplace Realities series.
Read more here
Image courtesy of shutterstock.com / KieferPix
Hurricane Ida losses increase on flooding analysis
AIR Worldwide estimates that Hurricane Ida’s insured industry losses will range from $20 to $30 billion, having updated its insured loss estimates after analysing the inland flood impacts across the entirety of its track, including the Northeast.
The risk modelling firm estimates wind and storm surge losses will range from $17 to $25 billion, and private-market insured losses from inland flooding will range from $2.5 to $5 billion.
Included in the estimates are losses to onshore residential, commercial, industrial properties, and automobiles for their building, contents, and time element coverage, as well as estimated insurance take-up rates for wind and flood across the entirety of Ida’s track, including the flooding that occurred in the Northeast.
AIR’s losses do not include any estimate of losses from the National Flood Insurance Program, or any losses from offshore assets. The industry loss estimates also reflect an adjustment to account for increased material and other repair costs in the current construction market.
According to AIR and Xactware analyses, materials costs have gone up significantly in the past year from supply chain disruption in the construction market. Although these costs have moderated since their peak in July when they were 80 percent higher than in September 2020, they remain about 30 percent higher.
This means reconstruction costs are more expensive today than they were a year ago. The increase in the total reconstruction cost index means that costs are higher on average nationally; this affects the low- as well as the high-severity events.
Read more here
Image courtesy of shutterstock.com / Benjamin Clapp
Lead image courtesy of shutterstock.com / Stockbym
