The number one issue at the upcoming reinsurance renewals is likely to be a lack of capacity in the retrocessional market, according to Bruce Lucas, Chairman and CEO of property and casualty (P&C) insurance holding company, Heritage Insurance Holdings, Inc.
Lucas’s comments came as part of Heritage’s third quarter earnings call, during which he also revealed that the company’s impact from Irma loss creep is expected to be minimal, at around $15 million.
In fact, based on discussions with Heritage’s reinsurance panel, the CEO said that loss creep is not considered a priority issue this year, with the view being that losses were sufficiently priced in last year.
Lucas explained that loss creep on Hurricanes Florence, Michael, Irma and Harvey, as well as the Japanese typhoon losses, were “barely even mentioned” during Heritage’s reinsurance discussions this year.
Instead, conversations were focused on a potential lack of retro capacity at the upcoming renewals, which could result in significantly higher reinsurance costs for the firm.
This dynamic has been exacerbated by the collapse of Markel CATCo, Lucas noted, which was a huge supplier of retro capacity.
“Fortunately for us, we’ve built a panel that is not very dependent upon retro, we think that helps us,” Lucas stated.
“That was an issue that we saw again in 2019 was, there were some retro squeezes that were taking place in the market. But we were still able to buy to the highest return period in the company’s history and save $10 million because of the diversification of our footprint,” he continued.
“We think that that diversification trend as it continues, will offset any potential, hopefully, reinsurance increases that could take place in 2020.”
Lucas added that the synergies Heritage has seen from growing its multi-state footprint over the last three years have also been paying off when it comes to reinsurance pricing.
