Sid Sankaran, Chairman and CEO of SiriusPoint, has argued that the re/insurance industry needs to reprice large parts of its property catastrophe business in order to generate acceptable net returns.
Speaking as part of the company’s Q3 earnings call, Sankaran maintained that SiriusPoint remains committed to property reinsurance, but intends to reduce its exposure.
SiriusPoint announced a combined ratio of 152% and a net underwriting loss of $266 million for the third quarter of 2021, driven largely by the impacts of Hurricane Ida and the European floods in July.
“The losses the industry has reported, not just this quarter but in the past few years, served to validate our focus on managing the volatility of our Property business as we continue to implement the changes identified by our line-by-line business review,” Sankaran told listeners during the Q3 call.
“While we have a strong balance sheet to absorb these losses, we’re making strong progress managing our books to de-risk by exiting risks that no longer fit our risk profile or where we do not see attractive risk-adjusted returns.”
Since the close of the merger in February, SiriusPoint has made strides towards reducing its catastrophe exposure through modest additional reinsurance purchases and rebalancing the overall portfolio to non-cat lines, including accident and health, credit, aviation and niche U.S. casualty lines.
A reduction of net PMLs over the last year also reflects the purchase of additional retrocessional reinsurance protection, a reduction of the legacy Third Point Re property catastrophe book and exiting risks that failed to meet stringent risk hurdles.
“However, these actions were insufficient in our minds to manage exposures down to acceptable levels on the in-force book acquired in the merger,” Sankaran conceded.
Going forward, SiriusPoint intends to further reduce its exposure by repricing businesses at risk where it does not see historically-priced margin asadequate, such as cat-exposed property pro rata business.
Additionally, Sankaran explained that the company will seek to apply a broad reduction in gross and net limits and in particular, outsized individual lines, particularly in geographies where low pricing for broad coverage presents potential over reliance on imprecise risk assessment.
And finally, SiriusPoint will also look to structure its reinsurance protections to manage net limits within the company’s risk appetite.
“Importantly, market conditions are improving due to heavy industry losses from catastrophes this quarter,” Sankaran remarked. “As a result, we expect to see better terms and conditions and pricing in the property market, although our focus remains on balancing our portfolio to reduce risk in the associated volatility.”
“We’ve also seen a hardening broadly in other lines, including cyber and large portions of the casualty and specialty markets in both primary insurance and reinsurance across most geographies,” he continued. “We believe the market is maintaining underwriting discipline, and we don’t expect a deterioration in terms. Through our remediation efforts, we expect to see an improvement in underwriting profitability with the lower volatility going forward.”