After disappointing property catastrophe rate increases at the January 1st, 2021 reinsurance renewals, Simon Burton, Chief Executive Officer (CEO) of Greenlight Re, is sceptical ahead of year-end, but feels comfortable with the firm’s current catastrophe exposure.
Catastrophe losses of almost $26 million contributed 19.1 points to Greenlight Re’s 109.3% combined ratio for the third quarter of 2021, as the hedge-fund backed reinsurer fell to a $12.6 million underwriting loss.
The impacts of hurricane Ida and the European floods in July have been a dent to reinsurers’ third quarter results, and have taken the re/insured loss total for the year closer to the $100 billion mark.
In response to the cats in Q3 and the rise in insured losses from natural disasters that’s been witnessed over the past five years, as well as the uncertain impacts of climate change on the frequency and severity of events, some carriers have pulled back from this market amid heightened risk aversion.
“So, our view on cat risk is, let’s call it, middle-of-the-road,” said Burton, speaking during the company’s third quarter earnings call. “The exposure that we take on we’re well paid for, notwithstanding that there’s been some volatility over the past few years and a loss this quarter.
“We don’t consider cat sufficiently well priced to be outsized in terms of our portfolio. That may change in the future.”
Looking forward to 2022, Burton noted that it remains unclear how the market will respond to yet another loss-making year in the property catastrophe class.
“Rate increases last January were disappointing as new capital arrived to replenish supply, which leaves us sceptical that sufficient capacity will be removed to support the needed catastrophe price improvements at this year-end.
“On the other hand, we expect the cat losses this year will help support and extend the generally favorable market conditions in most other classes. The continued low investment interest rate environment provides further support for pricing conditions overall,” said Burton.
Expanding on this, Burton explained that cat risk tends to be one of the business lines “where losses appear to drive sentiments, and the industry may demand price increases.”
However, the supply / demand dynamics for this market are still unclear as the industry approaches 1/1, fuelling doubts at Greenlight Re that needed price improvements will come to fruition.
“I’m not currently expecting that we’ll take an outsized position in the cat business. It’s quite unlikely. We think our current exposure is reasonable given the cat prospects. So, something around where we are today,” said Burton.
