One of the unusual things about the current hard re/insurance market is that there’s now been positive rate change for seven years running, and with market discipline expected to persist as carriers target better returns, Lancashire Holdings is confident that this market is here to stay, according to Chief Executive Officer (CEO), Alex Maloney.
“Every cycle is different, but every cycle happens for the same reason,” said Maloney during the firm’s Q3 2023 earnings call, when questioned on the difference between the current hard market and previous periods of firming.
As an industry, “we are in a good place and this year feels good for a number of classes,” he continued.
For certain classes, such as property catastrophe and retrocession, and the harder end of the catastrophe book, Maloney described the current environment as an “old fashioned hard market,” but was quick to point out that other classes within specialty, for example, the conditions are ok but not brilliant.
“So, I think it is different to some of the cycles we’ve seen in the past. Sometimes we’ve seen loss events, such as Hurricane Katrina, where you really shock the market and people’s risk levels are wrong and capital is destroyed quite quickly, and you get a very steep hard market for sort of two years, and then you start going back to more sensible times.
“I think what is unusual about this hard market, is as Paul said in his commentary, we’ve seen positive rate change for seven years now, and personally I’ve never seen that,” said Maloney. “But, let’s be honest, the industry hasn’t really made any real money for five years. So, I think it’s a hard market driven out of the need for profitability.”
According to Maloney, the direction of interest rates and where investors can get risk-free returns, is what’s going to push the re/insurance market.
“I think that is the part that gives us the confidence to say that this market is here to stay for the foreseeable future, because I think all carriers are just going to have to generate a much better return over risk-free for their investors. So, that’s why we see the market discipline, that’s why we’re confident we can grow into next year,” said Maloney.
