Stop running away from under-covered risks: Cloutier
Re/insurance companies should use the hard market to strengthen their balance sheets in order to break the insurance cycle and to insure protection gaps.
That was the view of Mark Cloutier, the chief executive officer of Aspen Insurance Holdings, who was speaking as part of a CEO panel at the Bermuda Risk Summit yesterday.
He said the industry was enjoying the best market conditions in decades and should not let them go to waste.
“The opportunity in front of us today is to use the current trading conditions to strengthen our balance sheets and to build greater resilience,” he said. “Once that is done, we can get back to the business we should be doing but often are not due to cyclical behaviours we stumble into.
“We should be searching for ways to fill under-coverage and coverage gaps and use the experience to find new solutions and products to cover risks we know are out there but we shy away from - for example wildfires.”
He said re/insurers suffered from a herd mentality which meant that when they struggled to understand a phenomenon such as severe convective storms “we run away from them and leave consumers under-covered”.
“With strong capital we should be able to go into these markets and do it in a properly thought-out way,” he said. “There is an opportunity to have a renaissance if we get ourselves healthy enough.”
Cloutier was joined on the panel by Everest Re Bermuda CEO Peter Bell, Hiscox Re & ILS CEO Kathleen Reardon and Convex Re Bermuda CEO Paul Simons. The panel was moderated by Association of Bermuda Insurers and Reinsurers CEO John Huff.
Reardon said both Hiscox as a group and its Bermuda company had enjoyed a record 2023 due to a focus on underwriting and profitability.
She said the property catastrophe market remained “compelling” and ESG was a “huge opportunity” with a Hiscox sub-syndicate insuring a wide variety of emerging energy risks.
She also said generative artificial intelligence was evolving rapidly and care needed to be taken with it, especially in cyber risk underwriting. She said AI needed significant investment and innovation.
Simons said at Convex, which had become a $4 billion company in less than five years, the focus was on putting the client first and on “sticking to the knitting”. He agreed with Cloutier that strong balance sheets should lead to the ability to insure under covered risks, but said it was also important to get underwriting right in property catastrophe and casualty.
Bell said Everest had also had a record year and this was based on longstanding client relationships and a focus on underwriting. He said Everest was reducing its exposure in some casualty lines due to galloping social inflation.
He said recent court judgments in the US were symptomatic of a “wealth creation system which is causing instability and volatility”.
“The rate is not keeping up with social inflation,” he said. “We are not coming out of casualty entirely, but we are giving deep thought about going forward.”
Asked about the mergers and acquisition space, Cloutier said the robust health of the market was a disincentive to mergers.
“We are all doing really and producing great returns for shareholders,” he said. “Why would anyone want to do the brain damaging carnage of M&A? It is distracting for people.”
He said he thought large scale mergers or acquisitions were unlikely because it was possible for companies to grow their capital at responsible rates, and there would also be concerns about unknown pre-2019 casualty reserves.
However, he said a merger or strategic acquisition could take place where a company wanted to enter a specialty where it did not have a track record or wanted to acquire technology.
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