BMS RE
Solving the unsolvable in 2022
Challenging the status quo is a core tenet for BMS Re and one that has paid dividends in the disrupted market of 2022, Pete Chandler tells Intelligent Insurer.
“2022 will be a year that we don’t want to revisit any time soon,” says Pete Chandler, president and chief executive officer at BMS Re, reflecting on the past 12 months and expressing a sentiment most in the industry will appreciate.
And what an eventful year it’s been, with a hard market, soaring inflation and the impact of Hurricane Ian, to name just a few things. But, he says: “On a macro basis, the industry on the whole—both insurance and reinsurance—remains well capitalised.”
The past year has seen the hardest hard market for decades and while Chandler says that the current “very challenging market” could be attributed in part to Hurricane Ian, he believes that the main driver has been the leveraged effect of inflation on the industry.
“It has caught the industry somewhat flat-footed, which I hate to say because we are extremely nimble, but the rapid exponential increases in both the internal and external costs of capital have challenged reserve adequacy, exposure valuations and therefore, pricing.”
The arrival of Ian in September and the impact it had on Florida, which was already a stressed market, was yet another disruptive element to add to the mix, he says.
Even before Ian hit, the pull-back from property-cat was evident. “It has been a year where, amazingly in the aggregate, we’ve seen certain underwriters literally say they don’t know how to underwrite property-cat any more.”
Chandler calls this “fascinating” in a class of business that has “been around forever” and has more analytical firepower than any other line of business. Even with this arsenal behind it, property-cat started looking embattled. Chandler says that the leveraged impact of inflation and the continued losses from weather-related events, combined with a loss of confidence in off-the-shelf modelling, “has created an environment we have not ever seen in our industry”.
Earn your stripes
It’s been a year of big, ongoing challenges, but Chandler is not without optimism, particularly in respect to capital. He believes that the industry is “extremely well capitalised” compared to where it has been in prior periods of disruption. This is in spite of major events such as the war in Ukraine, COVID-19 and the potential for recessions in the world’s largest economies in 2023.
“All of that together has brought forward an environment that we candidly have not encountered before. It’s forced everybody in our industry to take a step back, to look at their strategies and say: ‘Maybe it’s time to get back to being specialists’. And that’s not necessarily a bad thing.
“When you see certain players literally walk away from the property-cat market, that’s going to cause disruption. It will be challenging for the market to fill those voids. At the same time, I honestly believe that our industry is very resilient.”
Chandler is quick to flag up recent headlines about stamp capacity increasing dramatically at Lloyd’s. His view is that it shows a market with a desire to “always run at opportunities and find ways to solve those industry risk transfer issues”.
“This migration towards managing general agent business has been unprecedented.”
Pete Chandler, BMS Re
He is also very positive about the market’s ability to do business in this very disruptive, hard market.
“This is where we earn our stripes. I’m very compelled and intrigued by what this current market environment is going to give us, as an industry, to go out and provide risk mitigating solutions to our clients that absolutely rely on reinsurance capital support and the strong professional relationships that accompany that risk transfer. That’s what we are here to do.”
It’s a strong rallying cry, but many in the industry today have never experienced a hard market. Chandler acknowledges that the last truly hard market was in the mid 1980s.
“There’s at least one, if not two, generations of individuals in underwriting and broking, on the primary and reinsurance sides, who have not experienced this.
“This is where institutional knowledge and mentoring processes matter, training programmes and challenging the status quo matter, because soft markets do create bad habits—full stop.”
BMS Re has been tackling this by building an environment of continuous education. In the UK, the reinsurer launched a discovery programme to bring in individuals between the ages of 15 and 18 to introduce them to the business. In the US, the reinsurer is very enthusiastic, aggressive even, about hiring interns, as well as college graduates, to bring in different perspectives.
“The diversity of opinions and ideas is what will carry us forward,” Chandler says.
The company also encourages more experienced colleagues to join the global mentoring programme “to pay forward” the training they received when they were developing their careers.
Pushed in a different direction
There are always opportunities in a hard market, even one where the conditions have been created, in part, by COVID-19, Chandler says. “We’ve seen a big migration from the standard admitted market to the non-admitted market. COVID-19 drove a lot of that. The absolute need for freedom of rate reform, the pandemic drove a tonne of that.”
He says that in mid-2019, BMS Re came to this challenge with a blank sheet of paper. As a result of that the business was able to make the necessary pivot into E&S smoothly and transparently.
“We’ve put ourselves in a position to be successful.”
“We were able to go out to the marketplace and say: ‘we understand this space, we have markets that want to grow in this space’.
“I would absolutely say that that kind of move from standard admitted business to E&S in the property and casualty realms has created an significant opportunity. Similarly, this migration towards managing general agent business has been unprecedented. We’ve been able to capitalise on that.”
Chandler plans to continue to challenge the status quo and look for other forms of capital. In Autumn 2022, the reinsurer executed a very significant insurance-linked securities casualty transaction, in part as a result of conditions created by COVID-19.
He adds: “These worldwide phenomena that we have no control over have pushed our industry in a different direction. I’m thrilled that BMS Re has had the wherewithal to take a step back to try to anticipate what may come because of those events. We’ve put ourselves in a position to be successful, not just today but going forward as we continue to grow and evolve as a broking house.”
For Chandler, this evolution allows the company to dismiss suggestions that trading with a smaller broker comes with execution risks. In 2022, he says, everybody was saying that wildfire capacity wasn’t available, yet BMS Re was able to bring wildfire capacity to the marketplace that summer.
“When people were stating that medical malpractice was swiftly becoming uninsurable because social and medical inflation were destroying that line of business, BMS Re never stopped creating solutions for its clients, and delivering the requisite capital and capacity to its clients, to ensure their ability to provide front end insurance solutions to their insureds,” he says.
“I firmly believe, and we’ve proven empirically, that when you present a challenge to an organisation such as BMS Re that has the wherewithal—financially, analytically and within our colleague base—to take time to solve it, talk to the market, capital providers, and reinsurance providers about what we’re trying to solve, that makes for a very dynamic conversation,” he concludes.
Pete Chandler is president and chief executive officer of BMS Re. He can be contacted at: pete.chandler@bmsgroup.com
Image: Shutterstock / Gorodenkoff
