Persistent rate reductions, a continued oversupply of capacity and minimal loss activity isn’t expected to materially change the outlook of the re/insurance market, but cracks are starting to appear in the space, according to the Chief Executive Officer (CEO) of Lancashire Holdings, Alex Maloney.
Specialist Bermuda and London insurance and reinsurance underwriter, Lancashire Holdings, recently held its first-quarter 2017 earnings call, where the firm’s CEO discussed broader insurance and reinsurance market trends in the current, challenging operating landscape.
Despite rate reductions in the reinsurance market slowing at recent renewals, the ongoing decline is adding further pressure to the underwriting profits of firms, while low interest rates continue to offset any substantial gains on the investment side of companies’ balance sheets.
Speaking on Lancashire’s Q1 2017 earnings call Maloney noted recent departures across the industry driven by a need to make tough decisions in a tough landscape; the thin margins across the space and that an oversupply of capital, which comes from both traditional and increasingly alternative sources, has driven years of rate reductions across a number of business lines.
“I expect this process to continue until underwriting margins become more favorable as our industry gets to grips with thin margins and issues of expense,” said Maloney.
“We are finally seeing cracks appearing after years of rate reductions, overcapacity of insurance capital, and little loss activity. This will not in itself materially change the outlook, but we still believe that once enough capital is impaired, things will change.
“Until that day, we will continue to stick to our path, and we will focus closely on producing sensible risk-adjusted returns for our shareholders and capital providers across Lancashire, Cathedral and Kinesis,” said Maloney.
Maloney stressed that while a slowdown in rate reductions across a number of business lines is a realisation of little room to navigate and push down rates further, it’s “by no means a hardening of the market,” but more an early indication that things are starting to change.
As noted by the Lancashire CEO, the underwriting environment remains difficult and in response re/insurers will need to remain disciplined and continue to look for ways to increase efficiency as required profitability becomes harder to achieve.
