Property catastrophe reinsurance pricing has been on the rise for some time now, but when you consider the impacts of consecutive above-average years of natural disaster events and losses, exacerbated by climate change, it simply hasn’t moved enough, according to Juan Andrade, President and Chief Executive Officer (CEO) of Everest Re.
As insurers and reinsurers continue to report their Q4 / full-year 2021 results and update on their experience at the January 1st, 2022, reinsurance renewals, it’s become clear that many have found conditions in the property cat space unfavourable and have subsequently cut their exposure.
In 2021, re/insured losses from natural disasters again exceeded $100 billion, with some estimates as high as $130 billion for the year, making it one of the costliest years on record for the industry.
The result has been elevated losses for carriers, and with interest rates dampening investment returns, reinsurers have been pushing for more rate to offset the growing challenges of rising secondary peril losses on top of the threats of storms, earthquakes and so on.
In response, some players have decided to retreat from the property cat space to lower the volatility of their book ahead of the U.S. wind season, and this includes Everest Re.
Speaking during the firm’s Q4 2021 earnings call, President and CEO Andrade explained that at 1/1, Everest Re “successfully achieve targeted growth in our regional continental European portfolio across P&C lines, as well as our UK excess of loss portfolio.”
However, in property, “we reduced our exposure to property retro, lower margin property, pro rata business and working catastrophe layers, while at the same time growing targeted clients at excellent terms.”
All in all, the reinsurer “meaningfully reduced catastrophe loss potential” in its book and “achieved gross PML reductions in key peak zones,” said Andrade.
Later in the call, Everest Re’s management was questioned on the fact some sizeable players are withdrawing from Florida, a peak zone for U.S. wind exposure, amid heightened activity and what this might mean for the industry going forwards.
“Look, the reality is that pricing in property cat has improved some, but it hasn’t improved meaningfully enough to be able to justify and pay for the catastrophe exposure that we’ll see, that is really being driven by climate change,” said Andrade. “And, so, that has driven underwriters to be, I think, a lot more prudent, particularly in an environment like Florida and in southeast wind in general.”
Adding that: “I think the issue there becomes more of a public policy issue going forward about capacity, the ability to ensure there’s public policy questions with regard to zoning, with regard to construction, to essentially how we deal with a problem that we all have as a society that is related to the warming of the seas, rising sea levels, etc.”
As noted by Andrade, Everest Re reduced its exposure to property retrocession at the Jan 1st renewals, a trend adopted by numerous carriers as they look to avoid aggregate and lower layers amid rising frequency, notably from secondary perils such as flood and wildfire.
Speaking during the call, the firm’s Group Chief Operating Officer (COO) and Head of Reinsurance, Jim Williamson, highlighted the clear dislocation in the retro market at 1/1, noting that “our expectation is that will play through into the Florida renewals in a very meaningful way.”
Ultimately, Williamson expects to see some challenges at the mid-year renewals, which have a focus on U.S. wind and Florida.
“I think we’re reasonably bullish that that could result in some significant rate increases, changes to programs, etc. That could present opportunity for us in a very selective way. Over time, we’ve right sized our Florida, our southeast wind portfolio, we are taking a level of risks that we’re very comfortable with. And coming out of 1/1, we do have dry powder that we can deploy selectively when we see great opportunities,” he said.
“And, so, if the sorts of trends that we’re discussing here and the implication of your question come to pass, and there’s a lot of dislocation in the Florida market, we might use it as an opportunity to selectively and in a very targeted fashion, pursue some incremental opportunity at great returns,” continued Williamson.