Alex Maloney, group chief executive of Lancashire, the parent company to Bermuda-based third-party capital management division Kinesis, has claimed that the re/insurance markets remain cyclical, with the industry operating on the very margins of profitability.
As a result, he said, a big catastrophic loss would adjust the balance of capital and underwriting opportunity.
In a statement for Lancashire’s annual report Maloney said that the insurance industry cannot afford to operate on such tight margins long term and when a material upturn in global insured catastrophe losses eventually materialised, Lancashire will be ready for that moment of opportunity.
"I firmly believe that the insurance business is cyclical," he said. "We are now trading through what I consider to be a low point in the cycle." He said that Hurricane Matthew could have been much worse and caused only an erosion of earnings rather than serious capital impairment.
"However, Matthew illustrates that the market is operating at the very margins of profitability and that any material catastrophe loss could result in meaningful capital impairment. Macro-economic conditions and capital flows will change and catastrophe loss events will occur. Sooner or later the balance of capital and underwriting opportunity will readjust," he said.
According to Maloney, while the soft market remains, Lancashire will continue to service and protect its core book of business and seek to retain and reward all those people who are key to the success of the company’s operations.
"This requires patience and discipline. The last couple of years have seen instances of insurance businesses effectively changing themselves through mergers and rationalisation of existing operations.
"That approach may buy time for some. However, the insurance industry cannot afford to operate on such tight margins over the longer term, in particular faced with the threat of a material upturn in global insured catastrophe losses, which will materialise sooner or later. Lancashire is ready for that moment of opportunity."
Peter Clarke, non-executive chairman of Lancashire, added that the industry is at a point in the insurance cycle where an excess of capital and historically low investment returns mean that all disciplined insurers are operating on tighter margins and generating lower returns than they have done historically.
"The coming year will continue to be about implementing a core defensive strategy, ensuring that Lancashire is ready for the day when the market hardens."
Lancashire, Alex Maloney, Peter Clarke, Insurance, Reinsurance, Catastrophe, Loss, Bermuda, Global