Reinsurance at an inflection point: capital, discipline and the hunt for growth

At a roundtable in Monte Carlo, 10 Bermuda market leaders explored how reinsurers can pursue growth without sacrificing discipline as rates soften and new risks emerge.

The market is at an inflexion point; it is profitable and awash with capital, yet downward pressure on rates means carriers face increasingly difficult decisions over growth and capital deployment. The wider picture is equally exciting. New and increasingly interconnected risks offer significant opportunities, but also challenges, with data centres, AI and cyber high on that list.

That was the overarching theme of a roundtable discussion held in Monte Carlo by Bermuda:Re+ILS. It featured 10 senior Bermuda executives drawn from carriers, brokers and service providers. A fast-paced debate spanned everything from the reinsurance cycle and casualty ILS to AI, crypto and Bermuda’s competitive position – but discussions began with market conditions.

In attendance:

• Brad Adderley, Bermuda managing partner, Appleby
• Chris Bonard, group president, Price Forbes Re
• Matthew Britten, partner, PwC Bermuda
• Chris Dart, head of treaty reinsurance – Bermuda, Willis Re
• Kathleen Faries, CEO, Artex Capital Solutions
• Renaud Guidée, CEO of reinsurance, AXA XL
• Martin Henley, founder and CEO, mea Platform
• John Huff, president and CEO, ABIR
• Mahesh Mistry, senior director – head of analytics, AM Best
• Leonie Tear, partner, Walkers

Chris Dart, from Willis Re, started on a positive note. He described significantly more supply in the market and agreed that softening was taking place, but stressed that it was happening from a very strong starting point.

“It's the old adage of supply and demand – we've certainly got way more supply in the marketplace right now than we've ever seen,” he said. “You talk about the softening going into next year. I’d agree, it's just that supply-demand dynamic, but we’re softening from a really, really good, strong position and that’s what I think people need to remember.”

Dart pointed particularly to the changes made in 2023, including the recalibration of retentions, and to improvements in the underlying insurance business.

“Policyholders are retaining a lot more risk themselves with the deductibles and everything else,” he said. “I certainly think we’re in a very, very good spot in the marketplace right now.”

That does not mean the risk environment has become easier. Dart pointed to active storms in the Pacific, climate change and geopolitical uncertainty as reminders of the exposures still facing the industry.

Renaud Guidée, of AXA XL, agreed that work done by primary carriers had helped underpin the economics of reinsurance, but stressed there was significant differentiation between cedants. “It all boils down to the quality of the relationship you can have with them, to the level of trust and transparency that comes into it and to the scrutiny you can exercise,” he said.

That allows reinsurers to reward carriers that have cleaned up their books, managed limits and taken underwriting and rate action, he added, helping the economics continue to make sense despite headline rate reductions.

AM Best’s Mahesh Mistry also described a market in a strong position. After difficult years before the latest hardening, reinsurers have benefited from structural changes to terms and conditions and rates, while continuing to generate returns above their cost of capital.

But he used the phrase “inflexion point”.“This year looks good, but going into 2027, capital’s there. How it is going to be deployed is a key question,” Mistry said. “Are companies going to chase growth or are they going to be a bit more conservative and cautious in terms of business?”

The wind can change

For the Association of Bermuda Insurers and Reinsurers (ABIR), John Huff pointed to terms and conditions as one indication that lessons from previous cycles might be sticking. “Rates remain adequate, so you see some moderation or softening, but still adequate,” he said. The amount of equity and capital available also gives reinsurers the “luxury of choosing where this capital is going to be deployed”, he added.

But several participants questioned how long that discipline would hold if loss experience remained benign.

Brad Adderley, at Appleby, noted the market had benefited from three years of relatively benign reinsurance losses. The test, he suggested, would be whether discipline survives another such period as rates come under pressure and companies look for ways to use their capital.

Chris Bonard, from Price Forbes Re, agreed. “We're still seeing terms and conditions holding,” he said. “But I think if we have no wind season or something else, as you go into next year, you'll start seeing the deductibles coming down and the tinkering in the terms.

“It's holding up at the moment. But there’s so much capital coming. Everyone’s got to grow. I think it’ll be quite interesting to see whether those terms hold up without a storm or other event that’s active.”

Guidée added another consideration; while retention levels might appear stable in nominal terms, inflation means they are already declining in real terms.

Matthew Britten, from PwC Bermuda, said reinsurers were also conscious of what stronger retentions had protected them from.

“There have been benign losses for the reinsurance industry, but the amount of insured losses that have been driven by severe convective storms and some of the other secondary perils that have some frequency to them, the reinsurers have avoided those because in 2023 we pulled back and terms and conditions got strengthened,” he said.

“I think the reinsurers are very cognisant of the fact that if there is a weakening in that, they're going to expose themselves to that side of the losses.”

The abundance of capital creates another problem. Many reinsurers are sitting in excess capital positions, Britten noted, leaving them with a series of imperfect options.

“You deploy it to growth at a point in time when the market is softening in many areas. We potentially acquire something, or we buy back stock. Each of them has a challenge at this particular point in the cycle,” he said.

“There is some pressure from a governance perspective: what do I do in this situation?”

For Kathleen Faries, at Artex Capital Solutions, that conversation should also be viewed through the eyes of investors. She reminded participants of the message given to investors when market conditions were more difficult: that reinsurance could deliver a sustainable and profitable asset class over the long term.

“It's okay to have some pricing variation based on where we are in the market, but it has to be sustainable over the long term,” she said. “Otherwise, investors won’t be there when we need them, and at some point, we will. We need to continue building that trust and maintaining discipline.”

Her message at the end of the discussion was similarly straightforward: “Let's show that we can be a trustworthy asset class.”

Casualty attracts capital, and caution

With property rates softening, attention is increasingly turning towards casualty.

Huff noted that the US casualty market continues to face significant uncertainty from social inflation, litigation and large jury awards. He highlighted Florida's tort reforms as a notable development but said litigation risk remains a major issue elsewhere.

Faries said interest in casualty ILS continues to increase, including from a different pool of capital than the institutional investors traditionally associated with property catastrophe risk.

But she stressed that casualty risk is a “very different animal”. “The structures are highly bespoke,” she said. “I think the industry is still figuring out the best way to manage and transform casualty risk. To be honest, it feels a little fast and furious right now.”

The longer duration of the business and the nature of the capital entering it mean structures need to be designed with an eye on what happens many years down the road.

“It is exciting to have different investors, a different line of business that we’re transforming and putting risk transfer around. But it is going to take some continued thought to make sure we don’t have bad things happen down the road when you’re talking about very different private credit investors,” Faries said.

Mistry shared some of that caution. AM Best remains concerned about adverse development in US casualty, including older accident years, while also watching how new sidecar structures transfer risk. “Casualty is quite a big bucket,” he said, pointing to general liability, excess liability, umbrella and commercial auto as areas requiring particular scrutiny.

With investors potentially looking to exit after three or five years, he said an important question is what happens to the tail risk afterwards. “Everything is bespoke,” Mistry said. “It all needs to be looked at on a case-by-case basis. How it's structured is critically important.”

Tear said exit arrangements are already a major focus when longer-tail sidecars are established. “The investors want more and more innovative or different and tailored exit solutions,” she said. “You're looking at who's going to be coming in later. That’s probably the side of sidecars at the moment that’s different from property – ensuring you can get out and that you don't have that trapped capital.”

Britten also urged caution on casualty despite greater optimism around more recent underwriting years. While carriers have taken action, he said litigation financing and social inflation remain substantial challenges.

“There’s optimism out there about casualty,” he said. “I think people need to be very cautious about it. I'm not sure we're ready to say it’s been solved.”

Data centres move up the agenda

The conversation then shifted towards emerging risks – and quickly arrived at cyber, AI and data centres.

Guidée described cyber as a potentially substantial revenue pool, but also a potentially significant loss generator. In his view, the industry still faces a fundamental problem around willingness to pay.

He compared the situation with earlier stages of other insurance markets, when coverage was initially offered cheaply to encourage uptake.

“When you give something for free or for a very nominal premium for years, ultimately, when risk spikes up and you tell people now you have to pay for it, you have no ability to charge because people don’t see the underlying value in the product,” he said.

He suggested it might ultimately take cyber’ s equivalent of Hurricane Andrew to change perceptions of the risk and what adequate protection should cost.

Tear said another difficulty is the lack of data needed to understand and price cyber exposures. In some cases, that is encouraging companies to retain the risk themselves through captives.

“I think the innovative insurers are going to start coming in because they understand cyber,” she said. “The ones that understand cyber, the ones that understand DeFi risk, digital asset risk – they’re going to be coming in and setting up different insurance vehicles within Bermuda.”

Data centres generated perhaps the most animated discussion.

Dart described their rapid expansion as both an emerging risk and a “huge opportunity”, with exposures extending well beyond property.

“There’s a lot of risk associated around that, from AI to the lithium-ion battery ignition risk to liability,” he said. “There’s just so much, and where does it actually sit? Is it in the D&F market? Is it sitting in the reinsurance market, where the values are so large and the concentration risk that we’re going to start to see as they get built out?”

Bonard also highlighted the sheer amount of capacity that could ultimately be required and the difficulty of understanding accumulation risk within data centres.

The physical characteristics vary considerably as well. Britten noted that a purpose-built hyperscale facility designed as a highly protected property risk presents a very different exposure from a warehouse or other existing building retrofitted into a data centre.

Questions around power demand, lithium-ion batteries, concentration and technological obsolescence add further layers.

For the industry, the attraction is obvious – enormous amounts of new infrastructure will require protection. But the discussion repeatedly returned to how little is yet understood about how those risks interact.

AI: opportunity, exposure and governance

The same tension emerged around AI itself.

Martin Henley, of mea Platform, argued that technology can free skilled insurance professionals from administrative work to spend more time understanding complex risks.

“There is an opportunity to use the technology now to remove a lot of the manual effort going on across the whole industry substantially and – not to cut heads and do cost-cutting – but get those who are pretty expert in insurance actually focused on some of these emerging risks and really understanding them,” he said.

He estimated some underwriters might spend 50% to 70% of their time on administrative work.

But he does not expect the benefits of AI to be shared evenly.

“The tide should rise for all. That's not really what we’re seeing,” Henley said. “We're seeing it rising quite quickly for some who are managing to grab the opportunity and, frankly, make it stick in their companies.”

Companies that succeed could create an advantage that compounds quickly, he argued, by improving risk selection, operational efficiency and their understanding of data.

Britten was more cautious about how quickly that advantage will become visible in financial results. Insurers are investing heavily and submissions are an obvious use case, but challenges remain around data, legacy technology and the need to redesign processes rather than simply bolt AI onto existing systems.

“We haven't actually seen the numbers come through yet in anyone's set of results or anyone really determine that we've had this definitive benefit,” he said.

Tear pointed to another challenge: governance.

As AI becomes embedded throughout insurance businesses, boards will need to know where it is being used, what data goes into it, what comes out and how those outputs are checked.

“They are expecting boards of insurers to really understand AI, be able to have their inventory. Where is AI sitting? What are you using it for? What are you relying on it for? What is the risk?” she said of the Bermuda Monetary Authority’s expectations.

AI also creates risks that might themselves require insurance. Tear raised the example of an autonomous agent behaving unexpectedly, while others pointed to the difficulty of separating AI exposure from cyber, privacy, physical infrastructure and other risks.

For Faries, that interconnectedness might require a change in how insurers think about underwriting.

“As an industry, we're still very siloed: property underwriters, casualty underwriters, cyber underwriters,” she said.

“Maybe the future involves leveraging AI to better understand the interconnections and complexity across risks that could increasingly become systemic in nature.”

Can Bermuda keep its edge?

The discussion eventually returned to Bermuda itself.

Guidée said the island retains powerful advantages: talent, the ability to attract capital and a marketplace where transactions can be completed. But he also identified a competitive threat as large primary carriers increasingly seek to access financial investors directly.

“If that becomes a pattern, and the blueprint is to do it through Lloyd's of London, which itself is a fantastic platform as well, I think it begs the question of Bermuda: how do you remain relevant and competitive if you are totally sidelined?” he said.

“I think there's an urgency to take action to make sure that Bermuda has a competitive product which can rival London in that dimension.”

Huff pointed to agility as one of Bermuda's defining strengths and to the close relationship between industry, government and the regulator.

“We have that, what the premier calls, the Bermuda Triangle – the ability of industry, the regulator and the government to work closely together, which doesn't always align in the UK,” he said.

Other jurisdictions might seek to reproduce Bermuda’s regulatory structures, he argued, but creating the surrounding marketplace and supervisory expertise is more difficult.

Mistry agreed that Bermuda has a track record of adapting as new risks and structures emerge, while Bonard pointed to how much more diversified the market has become.

The island has moved far beyond the predominantly property catastrophe-focused market of two decades ago, participants noted, with substantial life reinsurance, specialty, MGA, captive, retrocession and increasingly digital asset expertise now sitting alongside its traditional strengths.

Faries nevertheless sounded a note of caution. Strong supervision is an important part of Bermuda’s credibility, she said, but it needs to remain compatible with the innovation that has helped build the market.

“What we don’t want to happen is now is an overly regulated environment where we can’t continue to be innovative and think about new things to do to meet the needs of clients,” she said.

Tear argued that the BMA has so far struck that balance, including in its approach to AI, where it has issued guidance rather than seeking to regulate the technology itself. “The BMA are really good. They understand what they're doing, and are flexible,” she said. “I think that the scrutiny is a badge of credibility for Bermuda.”

Adderley, meanwhile, expects another frontier to emerge around digital assets. He said he is already seeing new vehicles involving crypto risk and expects more crypto insurers and new sources of collateral and capital to enter the market over the coming years.

Despite the breadth of risks discussed, the roundtable ended broadly where it began: with a market in a financially strong position, but one facing increasingly complicated choices over how to use that strength.

Guidée described the current situation as an unusual equilibrium in which insurers and reinsurers are fulfilling their purpose while earning their cost of capital, and brokers are also benefiting from a healthy market.

“The market is healthy and the way the value chain is shared and split is actually quite balanced,” he said.

For Britten, the longer-term growth opportunity remains compelling, even if the immediate environment makes achieving it more difficult.

“There are big exposures that come and do need to be insured,” he said. “The reinsurance industry can really lean into that.”

The question facing the market is how it does so without giving back the gains that put it in such a strong position in the first place.

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