As positive rate momentum continues across virtually all lines of business, the Group Chief Executive Officer (CEO) of Lancashire Holdings Limited, Alex Maloney, is confident that the opportunity at the upcoming January renewals is better than what it was a year ago.
The underwriting environment is “transitioning to the harder stage of the cycle” said Maloney, speaking earlier this week during the firm’s Q3 2019 earnings call.
Lancashire’s third-quarter 2019 trading statement revealed a positive quarter for the company, underpinned by impressive premium growth in virtually all lines of business as it made the most of improved market discipline.
Addressing analysts, CEO Maloney reiterated that he’s pleased with the progress the Group has made in challenging market conditions, and said that while the market is hardening, it’s still not a hard market, with further discipline and improvements needed.
Yesterday, the firm said that owing to an expectation of improved market conditions at 1/1 2020, it plans to retain all of its current capital to make the most of the opportunity. Analysts questioned Lancashire on this during the earnings call, and Maloney explained that as the company’s always said, it’s about the opportunities that present themselves.
“We believe there is opportunity to use that capital going into 2020,” said Maloney. He added that while there’s a lot of noise about retrocession and reinsurance purchasing at 1/1, “we believe that the underwriting opportunity is better than what it was this time last year.”
There’s still room for improvement, however, with Maloney noting that even with some of the significant rate increases seen, levels are still not adequate in some places.
“The market is moving on and clearly we think the opportunity is better than it was a year ago. Cat business is what drives most of our capital needs and if it starts to move, clearly we want to write more,” said Maloney.
The CEO continued to explain that the firm believes it has adequate capital for the opportunities at the Jan 1st, 2020 renewals, adding that if it doesn’t then that means the market is in a better place than anticipated, which isn’t a bad problem to have.
Commenting on reinsurance rate adequacy, Maloney said that people need to consider that the marketplace is at a stage where it’s not only about price.
“As an industry people need to consider what cat events they want to cover and what they are getting paid for those risks. It’s a combination of level and price and that is what you’re going to see going into 2020,” said Maloney.
The extremely impactful and costly catastrophe events of 2017 and 2018, combined with the events of this year has led to discussion around the potential heightened frequency of severe weather events, from hurricanes to droughts, wildfires and record flooding.
Maloney suggested that this increased level of frequency will be factored into models and appetite for risk, while the availability, or the lack of the availability of reinsurance heading into 2020 is likely to focus peoples attentions a bit more.