NEWS
Discipline and limit management become key as headwinds blow
After almost three years of tailwinds, some headwinds are now emerging for reinsurers, says Markel Re’s Don Bahr.
After almost three years of tailwinds which culminated in significant rate increases across many lines of business, conditions are now changing in the reinsurance market. Some headwinds are now emerging for reinsurers, and this means discipline and limit management will become key.
That is how Don Bahr, president of Markel Global Reinsurance since the start of 2023 when he took the reins from Jed Rhoads, characterises the market conditions he is seeing. He stresses that market dynamics broadly remain positive for reinsurers, but they must also continue to behave as rationally now as they have for the past three years.
“Our global reinsurance division benefited strongly from tailwinds in 2021/22 and maybe even early into 2023. We saw significant rate increases, particularly in the casualty lines. But those tailwinds are starting to wane, stop, or in some cases, such as directors & officers, liability and cyber, hit some headwinds and the market is seeing rate decreases,” he told Monte Carlo Today.
“On top of that, we’re facing many issues that we didn’t have to deal with three years ago. These include hyper economic inflation, high social inflation and increasing loss values. These are adding pressure on the industry’s reserve positions and generally causing adverse development on reserves—especially for business written in the soft market.
“The challenge is to ensure that any line of business we’re reinsuring is rate adequate. More importantly, rates need to keep pace with higher loss trends, which means limit discipline and management. That discipline is essential for managing the dynamics we’re facing.”
Opportunities remain, Bahr stresses, in areas such as marine and energy, mortgage, and aviation business. “Those areas have some capacity constraints and we’re going to work with clients to fill those needs.”
And he is optimistic the industry will handle challenges. “The reinsurance market behaved very rationally through the last three years, and I believe it will continue to behave rationally as we move into 2024.”
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“Rates need to keep pace with higher loss trends.”
Don Bahr, Markel Global Reinsurance
Changed portfolio
The reinsurance portfolio Bahr is running looks very different from three years ago. In 2018, the company acquired insurance-linked securities (ILS) manager and property-cat specialist Nephila; in 2020, it took the decision to transfer its property-cat portfolio into Nephila and cease writing any new business in this sphere.
That means Markel Global Re now specialises in casualty and specialty lines. It has significant portfolios in professional liability, general liability, casualty multi-line, credit including mortgage, and workers’ compensation/accident and health. It also writes a number of specialty lines out of London, such as marine energy, aviation and terror.
Bahr says the tailwinds the business has enjoyed since 2021 aided this transition; it has more than made up that premium, and its book of business is bigger now than it was three years ago. He says it grew substantially in 2021 and 2022, in particular in casualty lines.
“We took advantage of increasing rates in the primary market to write new business and increase our lines on core clients,” he said.
“More recently, we’re seeing opportunities in our London specialty space, particularly in some pockets of marine and energy and aviation. We are continuing to grow that portfolio as well.”
Group strength
Bahr stresses that, although the two units have separate governance, oversight and capital, Markel Global Reinsurance works closely with Nephila and there are many synergies. “We complement each other. We collaborate on market trends, cedants, brokers and in other areas. It’s a very cooperative approach.”
Markel has stressed in recent years the importance of its different pillars—insurance, reinsurance, programme services and ILS—and the fact they complement each other. “It means we can find solutions within the group to almost any insurance-related opportunity or emerging issue,” Bahr said.
“We can find solutions within the group to almost any insurance-related opportunity.”
“We have the knowledge, the skillsets and the platforms, and the reinsurance division is a good conduit to bring additional business into that wider Markel platform. That said, I think we’re just scratching the surface; there is more to come from such synergies.”
With that in mind, the reinsurance unit has been investing in people and technology. When Bahr took the role, Tod Costikyan was simultaneously promoted to chief underwriting officer, global reinsurance. Since then, Bahr has fleshed out the rest of a senior management team that includes Bill Pentony, Bruce Stocker, Michael McCarthy, Alan Dowling and Steve Leitz.
In addition, Markel Global Reinsurance has increased its overall headcount by some 15 percent this year and invested heavily in data and analytics. On this latter initiative, Bahr said Markel wants to advance better and faster metrics to develop and enhance a solid, profitable portfolio.
“We want to be more engaged with our clients and brokers and make sure we’re meeting their needs and can help them with whatever comes down the horizon over the next few years,” he said.
“As we move into 2024, we are quite confident that we will continue to perform and grow over the coming years. Overall, Markel Global Reinsurance endeavours to be a relevant, valued and collaborative reinsurer and partner that meets our market’s needs,” he concluded.
Main image: Shutterstock / magensphotos
