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“Happy tailwind” of rising premiums reducing expense ratios will tail-off: Vickers, Willis Re

23rd April 2021 - Author: Steve Evans

Top-line growth has been helping global reinsurance firms to enhance their expense efficiency, but this “happy tailwind” won’t last forever, warns James Vickers, Chairman, Willis Re International.

James Vickers, Chairman, Willis Re InternationalSpeaking with our sister publication Artemis in the latest of its Artemis Live series of video interviews, James Vickers discussed the performance of the global reinsurance market, as well as reinsurance capital trends and opportunities.

Turning to the topic of expense efficiency in reinsurance, Vickers noted that top-line growth is what has actually been driving a reduction in expense ratios for reinsurers, in the main.

“The reality is that the bulk of its grown by premium volume-growth,” Vickers said during the interview.

Continuing to explain that, “The good news is, for reinsurers, if they can keep their current cost-base as it is, yet grow their top-line significantly then that of course will drop their expense rations.

“But having said that, looking over a medium term, we’re not going to be in a hardening market forever, so that happy tailwind of increasing premiums leading to reducing expense ratios will tail-off, which is why we’re seeing a lot of reinsurers looking at ways to reducing operational expenses.”

On how reinsurance market conditions are affecting Willis Re’s client-base, Vickers noted that it’s not a one-size-fits-all situation.

He explained, “It’s not easy to make a generalisation, because the market is firming at different rates, in different territories and different classes of business.

“For some clients, they’re seeing a fairly gentle increase. They haven’t produced much in the way of reinsurance losses and to be fair if they look at their reinsurance over a long-term basis they have enjoyed, certainly the last seven, eight maybe nine years, some substantial rate reductions. So, some gentle firming is something that they can cope with and is a reasonable outcome.

“However there are some more problematical areas where we’re looking at maybe the third year of fairly substantial rate increases and there is becoming a challenge of, can the primary companies pass on these rate increases to their original clients. Is it all getting a little bit too much.”

But it’s not all about the cost of reinsurance coverage, as the terms have become more restrictive as well and for some this has been more of an issue when it comes to renewal negotiations.

“Price is always an issue in a firming market, but perhaps some of the more difficult areas have been around coverage, where the reinsurance industry has looked to restrict coverage, particularly on things like pandemic,” Vickers said.

The full video interview is embedded below and can also be viewed in full, along with previous Artemis Live video interviews, over on YouTube.

You can also listen in audio to these interviews by subscribing to the Artemis Live podcast here.

All of the Artemis Live video interviews have a focus on reinsurance, ILS and the efficiency of risk transfer and can be accessed directly from Artemis’ YouTube Channel.

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