Insurance: disciplined, but competitive
Bermuda insurers are facing increasing pressure on rates due to rising levels of capacity, but recent renewals have shown that underwriting discipline is entrenched in the marketplace.
While reinsurers are facing considerable headwinds thanks to the influx of convergence capital, insurers have tended to avoid the direct attentions of alternative capital. However, it appears that they are now themselves facing an increasingly competitive environment characterised by rising levels of capacity and gently softening rates.
As Lou Adanio, executive vice president and chief underwriting officer, property insurance at Markel Global Insurance explained, “On our North American business we are seeing more capacity and competition. This has been felt in the rate environment, which was down 5 to 10 percent in 2013, and we expect that to carry through into 2014.”
Tony Mammolite, global head of worldwide property at Ironshore, concurred that 2013 had proved “more competitive than 2012, with more capacity in play”. Despite these conditions however, he said that he would “characterise the renewals as competitive, but responsible”.
Timothy Hadler, chief casualty underwriter at Argo Re, said that similar conditions prevailed in excess casualty, describing the market as “very disciplined over the past 12 months”. Hadler said that casualty losses in recent years, with a preponderance among smaller insureds, had helped maintain discipline and strengthened the value of excess casualty—particularly the large tranches of capacity that are a specialty of the Bermuda market.
“While losses such as the railcar accident in Quebec and the fertiliser plant explosion in Texas did not make their way to Bermuda, such incidents have helped to keep the prospect of losses in clients’ minds,” he said.
New capacity in the US property space has come from multi-class players looking to write more insurance premium, from existing players putting out more capacity, and from new entrants such as Berkshire Specialty, which is pursuing some ambitious growth targets, according to Adanio. One other element that is playing into the equation is broker facilities, with some insurers providing tranches of capacity to brokers that can be allocated on an automatic basis in line with market conditions, he said.
This, coupled with profitability in 2013 and revisions to certain modelled exposures, is exerting further downward pressure on US property insurance rates. “It is a shame that when as an industry we are profitable, our rates come under pressure, particularly in light of the volatility of the property book,” said Adanio.
Conditions are similar on the international side which Adanio describes as having been competitive for some time, although the market tends to have less marked swings than the US property market.
While rates have come under some pressure on property, terms and conditions in property have tended to hold up well, said Mammolite, although he cautioned that insurers need to be cognisant of potentially minor changes—“the odd increase in a sub-limit here, or an insertion there”.
Terms and conditions are proving even stickier in the casualty space, said Hadler. “From our perspective they are almost more important than pricing. The coverage our market offers has been broadly consistent over time.”
Despite reinsurance rates coming down in recent months, Adanio and Mammolite both agreed that there has not been any great temptation to ramp up their reinsurance spend as a result of market conditions. As Adanio explained: “It’s a delicate balance. It is attractive to buy right now because prices have come down, particularly in cat, but companies are retaining more because they want more control over their programmes.
“In the event of a major event the pricing environment is going to change dramatically. For stability, if insurers can retain the risk, they want to move in that direction whenever they can.” Mammolite added that insurers need to have confidence in their book. “If you start mixing and matching, you won’t have a proper earnings or premium stream.”
Opportunities: by degrees
Despite increased competition within the insurance industry there are opportunities for growth for Bermuda players. Adler said that in the excess casualty space, recent losses such as those in Quebec and Texas have helped to pique interest in coverage among smaller companies, having watched their peers being responsible for such sizable losses.
“We have seen a lot of interest from smaller companies looking at larger limits,” he said. “Although they don’t always pull the trigger, we are getting a lot of enquiries—more than we have had historically.” Bermuda casualty players will hope to be able to take advantage of demand for increased limits.
Mammolite said that Ironshore was seeing opportunities associated with the economic rebound in the US, with the company’s construction risk division being particularly bullish. He also sees opportunities in the insurer’s high-value home owners book, which is expanding its footprint in the US, as well as potential for growth on the traditional energy side.
Adanio said that coming from Alterra, the new combined company sees opportunities for growth in the US through Markel’s not inconsiderable broker channels. He also sees potential for Markel to grow its international book, leveraging an increasingly global franchise, although he admitted that international business tends to be fiercely competitive.