John Doucette, EVP, President and Chief Executive Officer (CEO) of Reinsurance at Bermuda-based Everest Re, has said that despite improving reinsurance market conditions, the company remains realistic that there are “choppy waters to navigate”.
Global reinsurer Everest Re announced recently improved year-on-year net income of $217.6 million for the fourth-quarter of 2019, while its combined ratio also strengthened on the prior year quarter, although remained in unprofitable territory at 101.5%.
While the firm’s underwriting result in the period fell to a loss, Everest Re has positioned itself well to reverse this metric in 2020 with the announcement of a stronger, healthier book across its overall global property catastrophe book after the recent January 1st renewals season.
“We are optimistic about the opportunity set in front of us while remaining realistic that there are choppy waters to navigate in both property and casualty lines,” said Doucette, speaking during the reinsurer’s Q4 and full year 2019 earnings call.
“It is an improving market marked by increasing demand for reinsurance and roughly flat reinsurance supply. And, for specific deals, pricing was determined by class of business, territory, and loss experience,” he continued.
So far, Jan 1 renewals commentary from analysts and re/insurers has noted some positive rate momentum, although this varied significantly by line of business, geography, and loss experience, as noted by Everest Re.
Doucette explained that he expects the momentum witnessed at 1/1 to continue throughout the year on both reinsurance and retrocessional business, with further upward pressure on pricing expected in Japan at the April 1st renewals and then in Florida at the important mid-year reinsurance renewals.
Prior to and following the January 2020 renewals, market noise has described the rating environment as U-shaped, with primary pricing and retro pricing either side of stagnant reinsurance prices. However, Doucette argued that pricing dynamics actually exhibit more of a W-shape, which differs because of the fact that in the W-shape model, reinsurance rates, terms, and conditions were mixed, with some highs and some lows.
Discussing the left side of the W, so primary insurance, Doucette explained that Everest Re writes a large amount of proportional treaties.
“We are directly benefitting from improving primary markets in casualty, property and specialty lines, particularly in E&S and in certain capacity restricted territories, such as Canada. Our relevance to our clients and brokers for providing much needed risk transfer, capital support and volatility management helps them capture value in these improved primary markets,” he said.
Turning to the middle part of the W, so reinsurance, Doucette told listeners that results were mixed, some good and some disappointing.
“Positives were global reinsurance programs, pockets of casualty, mortgage, structured business, many facultative lines and several loss-affected areas. Disappointments included several smaller capacity programs and several cat-free territories,” he said.
Regarding retro protection, so the right side of the W model, Doucette notes meaningful rate improvements at 1/1, leading the firm to write more premiums.
“As we look forward to 2020, we see January 1 momentum continuing throughout the year on reinsurance and retro, including upward pricing pressure both in Japan at April 1 and Florida at June 1. Trapped capital and investor fatigue continue as important drivers in the property space,” explained Doucette.
Clearly, reinsurance market conditions have improved in 2020 after a prolonged softened market state and consecutive heavy catastrophe loss years. However, many in the space have suggested that further improvement is needed across most lines of business in order for rate momentum to prove both sustainable and adequate in an evolving and competitive operating landscape.