NEWS
Everest Re sees growth in significant risk transfers
Mortgage reinsurance volumes are falling, but significant risk transfers are on the rise, says Peter Bell.
Everest Re’s Bermuda operation is seeing an increase in what it describes as “significant risk transfers” (SRTs), in Europe in particular, as large financial institutions look to free up capital to lend.
But mortgage reinsurance, which performed strongly in 2022, is beginning to fall in volume as high interest rates in the US discourage home buyers.
Peter Bell, the chief executive officer of Everest Re in Bermuda, said these were two of the key changes for the reinsurer, which has seen its underwriting increase from $700 million to $1.7 billion in the last five years.
He said the slowdown in mortgage reinsurance was expected as interest rates rose.
“Last year, there was a huge amount because with low rates there was a lot of refinancing, so yes, there’s a lot of business. The government-sponsored entities (such as Fannie Mae and Freddie Mac) were fairly inactive for a bit, and then they put a lot into the market.
“This year there is a lot less,” Bell said. “That’s probably going to be a steady state for next year, as interest rates stabilise. That’s the supply and demand dynamic as people buy fewer houses or refinance–there’s less business. But it’s still a core part of our overall platform.”
The drop-off has been offset to some extent by rises in SRTs, Bell said, although it can be complex.
“Your clients have to understand why you’re making a decision.”
Peter Bell
“We’re seeing a rise in SRTs, mainly in Europe at the moment,” he said, as banks move to transfer loans and other forms of credit in order to free up capital to take advantage of rising interest rates.
“It is a much smaller class for us than mortgage and we are starting to lean into it,” he said.
Bell said he expected the January 1 renewals to be relatively orderly, adding that Everest Re had not had as difficult a time as some others last year.
“Last year we took a conscious decision to have a very clean strategy with global clients, and then going to the client, making sure early what they want.
“It meant that we came out of 1/1 much better than many others. The clients understood why we were doing it and how we got there, as opposed to our saying ‘here’s your price, take it or leave it’. Your clients have to understand why you’re making a decision,” Bell said.
He added that Everest Re would use its $1.5 billion capital raise from last year to underwrite more, including in property-catastrophe and quota share property reinsurance which is “interesting because the underlying rate is still moving”.
Images, from top: Shutterstock / 200dgr