The first gathering in three years of P&C re/insurers in Monte Carlo is not merely a longed-for opportunity to reconnect in person, but the most urgent call to arms in a decade, Matthew Wilken, chief underwriting officer for Hiscox Re & ILS, told Monte Carlo Today.

Commenting on the implications of the hardening market, which has been the main talking point in Monte Carlo, he said: “Timing is everything.”

“There is increasing demand at a time when capacity is arguably plateauing,” he explained. “There are various protagonists in the market who think it’s marginally up and some who think it’s marginally down but, broadly, there’s not going to be systemic change to capacity in the next year.”

While capacity “stands still”, however, demand is increasing largely because inflationary pressures are resulting in customers wanting to buy more cover.

“I don’t know what that’s going to end up being in terms of the total market, but billions of dollars of limit is probably what customers are going to be looking for,” Wilken said.

That situation is in addition to a number of secondary peril events, such as hail and convective storms in the US, Australian floods, and the impact of the war in Ukraine on aviation, marine and energy lines.

“Hiscox’s half-year results were good, even in the face of the Australian floods, but we all know that there’s a lot of importance put on Q3 and the impact of North Atlantic storms. For the first time in approximately 25 years, we’ve seen no landfalling named storm in the Atlantic’s hurricane basin.

“That’s an interesting dynamic of climate change as well, but it all plays to the uncertainty # we see in the market. The cost of that has been a diversification strategy that gives perhaps false confidence in the level of uncertainty that’s been priced for. I feel the cost of that uncertainty has risen and will continue to go up,” he added.

Hiscox Re has a diversified portfolio with non-correlated cat lines such as marine & energy, and aviation & cyber that complement the natural perils exposure. Within the cat book itself the company continues to diversify geographically where terms and conditions warrant it—offsetting Europe against the US, for example.

“That proved to be very efficient for the market, but I see the price of that diversification being higher next year and almost everywhere. For the first time I can remember in my career, I can honestly say that nearly every single line of business we do is getting some pressure to increase price. Not to the same degree, but everywhere is simultaneously experiencing some hardening,” he said.

Helping customers

Prior to joining Hiscox in January, Wilken was head of reinsurance at MS Amlin in London. Before that, he was at Kiln Reinsurance, Argo Re and Ariel Re.

“Hiscox is a fantastic brand and very well established, with over 100 years of history and decades of that in reinsurance,” Wilken said.

The company has a “refreshed” team, with several new executives “augmented by” underwriters who have worked there for many years.

Wilken explained: “One of the differentiating qualities of Hiscox is the investment it’s made in terms of rigorous intellect applied to understanding the business that we’re doing. That’s particularly pertinent around climate change, about rate assessment, coverage issues, inflationary aspects, all of those things that are currently hitting the topical agendas of everyone’s conversations in Monte Carlo.

“It doesn’t mean we’re complacent—there is always more to learn—but we’re seeing increasing demand from our customers who are trying to protect their own portfolios in the face of what appears to be adversity.”

Vulnerability to primary and secondary perils is assessed by continually improving the modelling, he said, but an unexpected dimension will always appear. That’s because the world isn’t impacted only by natural perils, he said, but also by geopolitical issues, such as those related to the conflict in Ukraine.

“We’ll help our customers with some of those really challenging problems in the best way we can, but it’s bigger than just us. It’s up to the entire reinsurance sector on one hand and to society in general to find solutions to these problems.”

A key example of that is climate change.

Wilken said: “Previously there were conflicting stances towards climate change, with both sides of the debate bringing evidence to support their theories. It’s now generally accepted that climate change is real and that we need to do something about it. And things are being done about it!

“There has definitely been a sea-change in acceptance levels as to what is genuinely going on, but measuring all of that is complex.”

Contract clarity

One of the additional challenges of the softening market is a broadening of coverages and a degree of opacity, Wilken said.

“I’d welcome clarity through contractual changes. By definition as a reinsurer, we always want to be aligned to our insured and ensure that they’re getting the broader coverage that they need from us. However, as an industry we owe it to ourselves to be able to price adequately for all of those different underlying perils and regions,” he explained.

Conversations on changes to original policies are “too complicated” to be held during half-hour meetings in Monaco, he said, and people are waiting for the completion of the Rendez-Vous before they go back to their jurisdictions and have those conversations.

“When it comes to retrocession, for example, we are very keen to start becoming much more focused on the specific perils that were being covered,” he said.

Hiscox Re & ILS has a “pretty sizable” portfolio, he said, of over $1 billion in gross written premium.

“We’ve grown that book and we’ve used 2022 to be able to grow again. We’ve probably bucked the trend in being able to raise additional ILS capital to support us during 2022,” he said.

In the first-half of this year, the company raised approximately $560 million to deploy. It now has $1.9 billion in assets under management in an “aligned capital partner model”.

Wilken explained: “We’re augmenting our net line with the gross line that’s allowed to expand as a result of the ILS. The communication between the ILS team and the Hiscox Re underwriters is totally seamless. Underwriters are in the same place, at the same time, and discuss all risks simultaneously.

“We’re on ‘99 point something’ of all of the covers we write together. So, it’s not trying to take capital out, finding a specific home for it that we wouldn’t ourselves do and then deploying it; it is actually a shared ownership of the deals that we’re writing.

“The flavours can be quite different depending on how capital is deployed around the market. Ours was a very conscious decision to make it appear like that because we think it adds significant strengths to our ILS partners and to our customers, because we’re totally aligned. We both have ‘skin in the game’ on all the deals, and our customers like that.

“Coming back to Monte Carlo after three years, isn’t just a matter of a nice catch-up. These are the most serious conversations to be had in a decade,” he concluded.