As reinsurance market conditions remain favourable after the 1.1 2024 renewals, Bermuda-based re/insurer Arch Capital is predicting further improvement in its loss ratio as well as growth opportunities in the property catastrophe reinsurance market.
Having reported “excellent” financial results in its fourth quarter of 2023, Arch saw an underlying loss ratio within its reinsurance business in sub-50 for a second quarter in a row.
Underwriting income within the reinsurance division rose 25.5% in the quarter, this is in spite of an elevated catastrophe experience, which added 5.4 points to the loss ratio, somewhat offset by net favourable development of prior year loss reserves.
Even though volatility is expected, the reinsurance market is good and improving, the re/insurer noted, therefore it believes its profitability embedded in this business should not only remain strong, but grow.
Francois Morin Executive VP, CFO & Treasurer, Arch Capital, explained: “We have more property premium that is more short tail and should have a lower loss ratio ex-cat than not, compared to other lines. It’s a good market, so obviously, profitability embedded in the business should be strong.
“But we send you back to quarterly volatility where sometimes we have a better than normal quarter, even as a function of the book and sometimes not. There’s going to be volatility, we said it before, we say it again, the 12-month rolling average is to us a better way to look at it, and that’s how we see it. But certainly, we like the profitability in the book and it should remain strong.”
Marc Grandisson, CEO & Director, Arch Capital, said: “The reinsurance market is continuing to improve somewhat into the 1/1 renewal. So it is still a very, very good marketplace. So what it means for the loss ratio, I don’t know, but certainly, we’re seeing improvement.”
Regarding property cat, Arch does not see any constraints from the reinsurer’s growth within the market as it believes that, thanks to its low probable maximum loss (PML) of 9.2%, it has enough “room to grow there.”
Grandisson added: “I think the question about where it’s going to go is more difficult to answer because it’s dependent on what happens and what kind of activity we see this year. But I would probably point to the 2006 turn of the market, and it was probably ’07 a better year than ’06.
“And ’08, ’09 and ’10 were really, really good years in property because the market goes up very, very quickly, but does not go down in one fell swoop. You’ve got a lot of sustainability in the returns for a little while, but it takes a while before things get too close to the line or below the line of what we would want to adjust. So, we have some runway in front of us.”
