Jacques Bonneau, PartnerRe; Pete Chandler, BMS Re
Conversations with clients and reinsurance carriers have sent a clear signal that at this 1.1 renewals season rate hikes are to be expected. Bermuda:Re+ILS reports.
A pandemic, record natural catastrophe losses and the looming threats of climate change and a surge in cyber attacks mean that the past 18 months have meant grim reading for many re/insurance carriers.
Losses from natural catastrophes in 2021 are estimated to have reached over $100 billion, according to Verisk, with one of the busiest Atlantic hurricane seasons on record compounded by the rise of ever-heftier losses from so-called “secondary” perils such as wildfires in the US and flooding in Europe.
Combined with the yet-to-be-determined impact of the COVID-19 pandemic and the prospect of even more national lockdowns, with several countries in Europe weighing further restrictions at the time of going to press, the re/insurance market is staring down the barrel of another loss-making underwriting year.
Which is why in conversations with clients and in public, reinsurance carriers have sent a clear signal that at this 1.1 renewals season rate hikes are to be expected.
At a headline level the narrative at the point has become familiar: with the industry failing to meet its cost of capital for five consecutive years, losses across the board and the growing concern over the impact of climate change, carriers quite simply need higher prices to compensate for the risks being taken.
“One would like to think that prices would go up in reflection of increased exposure and other factors.” Jacques Bonneau, PartnerRe
Without a step change in the direction of pricing, carriers will be left exposed to higher risks as the economic reality of what macro trends such as climate change, cyber attacks and even low interest rates are having on these companies becomes more acutely felt.
That said, while industry insiders point to a hardening market, not all are convinced that the market has entered truly “hard” territory.
Low interest rates may make it more difficult to secure reliable investment returns, but they also make the reinsurance industry, with its relatively low correlation to other markets, an attractive investment prospect.
With a number of new startups launching in Bermuda and other markets over the past year and a seemingly unending supply of capital continuing to pour into the sector, can rates realistically go up while the other side of the equation remains as it is?
We asked some of Bermuda’s leading reinsurance executives to predict what is likely to happen at 1.1.
“I believe there is a shift this year. We are going to see more reinsurance-led pricing, versus what has been insurance-led pricing,” the chief executive officer of RenaissanceRe, Kevin O’Donnell, told an S&P seminar. He added that transparency around such a shift in pricing remains low, however, as it is “early in the cycle.”
A rise in price volatility, including social inflation and general cost inflation to claims, plus the expectations of investors made impatient after years of losses, especially in relation to nat cat, merit the shift in focus, panellists agreed.
“As a seller of capacity, one would like to think that prices would go up in reflection of increased exposure and other factors, namely inflation,” PartnerRe chief executive officer Jacques Bonneau said.
For AXIS Capital, the run-up in prices so far has left most lines “adequately priced” but with a visible sense that the insurance side has outpaced the reinsurance side to date. AXIS sees price increases of more than 40 percent over the past four years as allowing it to “catch up for a number of years of underpricing,” CEO Albert Benchimol told the panel.
Catching up is not staying ahead, however, especially as loss trends show little sign of abating. “It is important to continue to price for what are likely to be elevated loss costs prices for the next several years,” Benchimol said.
“Our charge is to go and find the most efficient capital available, wherever it resides around the globe.” Pete Chandler, BMS Re
“Is it sufficient for the risk taken on in 2022? Probably,” O’Donnell said of current pricing following recent “good momentum” visible on the market. “But on a rolling basis, probably not.”
BMS Re chief executive Pete Chandler told sister publication Intelligent Insurer’s Re/insurance Lounge that capital was still moving into the reinsurance sector, and that while some underwriters had taken a harder stance than in previous years, the broker retained a spate of options for its clients.
“We are still seeing capital come into the re/insurance community. It is disciplined capital, and in certain ways it is opportunistic capital. At the same time—as brokers, intermediaries and advocates on behalf of our clients—our charge is to go and find the most efficient capital available, wherever it resides around the globe and bring that to bear on behalf of our clients,” Chandler added.
The executive said that events such as Hurricane Ida and the summer’s European floods provided plentiful evidence that the cost of individual claims was on the rise, driven by global inflation, global supply chain dysfunctions and shifts in the labour market.
On pricing, Chandler explained that underwriters are “looking through lenses that are very much more critical than they have been historically, but there’s still an abundance of options and alternatives out there for them”.
PartnerRe, BMS Re, Renewals, COVID-19, Catastrophe, Climate Change, Cyber, Insurance, Reinsurance, Jacques Bonneau, Pete Chandler, Bermuda