Trading conditions at the January 1st, 2024, reinsurance renewals were much more stable than a year earlier, and with discipline maintained and a greater willingness from existing carriers to deploy, the outlook for 2024 is one of more stability and healthy levels of profitability, according to Paul Gregory, Chief Underwriting Officer (CUO) of Lancashire Group.
After reporting strong premium growth and an overall very strong set of results for 2023, Lancashire held an earnings call during which CUO Gregory discussed market conditions in 2023 and at the 1/1 204 renewals, as well as an outlook for the year ahead.
He explained that in 2023, there was a true hard market in property reinsurance, with lower supply and increased demand, a buoyant rating environment and importantly, structural changes that reverted the product to protecting balance sheets rather than just earnings.
“The value of these structural trends and the increased levels of attachment have been proven this year with a large number of small to midsize catastrophe losses having far less impact than would have been the case in previous years,” said Gregory.
Turning to the January renewals, Gregory highlighted a positive start to the year for Lancashire.
“It’s fair to say the trading conditions at the 1st of January were far more stable than 12 months prior, but, importantly, market discipline has been maintained,” said Gregory.
Expanding on this, the CUO explained that while it was a more stable and disciplined environment, “for property cat you were actually still seeing marginal rate improvement, and I think that’s primarily because 2023 was a good year, we have seen good margin overall but also on that portfolio. But let’s not forget, the prior years have been reasonably bumpy.”
“So, market discipline, as far as we can see is still there. There is more supply or more willingness to deploy from existing carriers, which is why we’re talking about a more stable market,” continued Gregory.
Lancashire is also a buyer of reinsurance, and Gregory confirmed that at 1/1, the company successfully purchased its outwards reinsurance coverages, explaining that in light of the more stable market conditions, the firm has a more efficient reinsurance structure for 2024 than it had last year.
Providing more details on this more efficient reinsurance structure, Gregory explained: “At the high level, the reinsurance we’ve purchased is broadly similar in shape to what we had last year, but in a market like last year where it was incredibly dislocated and reasonably chaotic, there are elements of reinsurance that you buy because you don’t know how much you’re actually going to buy, or how much reinsurance is going to be available. So, when you look back and you’re in a more stable environment, where you can have more certainty on your planning, there are certain reinsurance purchases that you don’t need to buy going forward.
“So, that’s what I mean by more efficient. In terms of overall shape, retention level, etc, broadly similar. But the bits around the side, there were less we needed to buy because we had far more certainty on the execution.”
In terms of reinsurance spend, Gregory noted that Lancashire does expect to spend marginally more dollars given the anticipated premium growth on the inwards reinsurance book, but said that as a percentage of inwards premium, spend will actually come down.
Looking ahead to the rest of the year, Gregory asserted that much like 1/1, “our outlook for rating across 2024 is one of more stability with healthy levels of profitability. Each product line will have its own dynamics, but all things remaining equal we do not anticipate any significant hardening or more importantly, any significant softening.”
