While recent rate increases in the reinsurance market are welcomed, the Chief Executive Officer (CEO) of Lancashire Holdings Limited, Alex Maloney has stressed the importance of looking at any increases in context of the rate given up over the past five years.
“You need to balance rate increases from where you are coming from,” said Maloney, speaking during the firm’s first-quarter 2019 earnings call.
After years of falling rates, thinning margins and two heavy years of re/insured catastrophe losses, underpinned by intense competition and a subsequent prolonged supply / demand imbalance, rates are starting to harden, albeit in some classes (loss-affected lines) more so than others.
In Lancashire’s Q1 2019 trading announcement, Maloney described a market in transition, noting that early signs of a market turn are now visible, while greater market discipline is also evident.
Speaking during the firm’s earnings call, the CEO said that the first-quarter had evolved as expected, with improved underwriting conditions, to varying degrees.
“It’s the first time we’ve seen such a hardening of rates for a number of years, but I would not call it a hard market,” he said. Maloney reiterated that the marketplace is still in a transition, adding that even with rate increases some business still fails to meet Lancashire’s criteria.
“We have not forgotten how far some rates have fallen, we are cautious, and more work needs to be done,” he continued.
Both Maloney and Paul Gregory, Lancashire’s Group Chief Underwriting Officer (CUO) and CEO of Lancashire Insurance Company (UK) Limited, said they were “encouraged” to see a better underwriting environment, but also stressed that “more work needs to be done.”
“Everything is in line with what we expected, and I think that everyone needs to temper their views. Yes, it’s great to see rate increases, but you have to look at them in context of how much rate you’ve given up in the last five years,” said Maloney.
As Lancashire expected, it achieved greater rate increases in specialty lines, with the majority seeing modest increases. Loss-affected catastrophe lines did provide increases, while non-affected lines remained flat or experienced minor reductions.
“On specialty, we expect a continuation of the same modest rate rises across most of those lines,” said Gregory.
Lancashire has also noted a positive outcome at the recent Japan renewals season, where it was able to deepen its relationships, with the market and clients reacting in a sensible way.
It remains to be seen what happens to rates at the upcoming mid-year renewals, which are heavily focused on much of the loss-affected U.S. business.
“The next quarter is going to be very interesting,” said Maloney.
