Ken Brandt, Chairman, President, and Chief Executive Officer (CEO) of TransRe is feeling positive about current reinsurance market dynamics as it’s about more than just better rates in the property catastrophe space.
In a sit-down interview with CapSpecialty, as part of the firm’s 25 Minutes with Cap series of video interviews, Brandt spoke with CapSpecialty CEO and President, Adam Sills, about the hard reinsurance market environment
“I think in the last 12 months, I feel really good about where the market is because it’s not just the rates. Rates kind of go up and down, but the terms and the attachment points generally stick,” said Brandt.
The CEO stated that, in his mind, a key issue is that very large insurers would have their cat programmes attach very low.
“So, it wasn’t really cat protection, it was earnings protection. And listen, they didn’t put a gun to our head. Everyone dove into that and lost a lot of money over the last four or five years,” said Brandt.
Now, continued Brandt, “the attachment points have all generally moved up.”
“I think those will be more long-lasting. A lot of the terms got loose over the last decade, those all firmed up. I think that will be more resilient. And then the rates will go up and down according to supply and demand,” he added.
Some in the industry have suggested that the hard property reinsurance market of 2023 has surpassed that of 1993, which followed the impacts of Hurricane Andrew.
One thing that is notably different with the current firm market, though, is the lack of a flurry of new market participants looking to take advantage of the favourable landscape.
During the interview, Sills questioned Brandt on the lack of new reinsurers.
“The model to take advantage of hard markets for reinsurance changed years ago. So, the old model was, post-Andrew, post-Katrina, you’d have all these new insurance companies, reinsurance companies formed mainly in Bermuda, but other places as well. But with the evolution of third-party capital, sidecars, cat bonds, ILS funds and the like, outside capital can form or be introduced into our industry without the need to form new insurance companies. That’s been going on for a decade now,” said Brandt.
“Now, it’s true that the flow of that type of capital into the cat reinsurance market has slowed in the last year. And the cause of that is pretty obvious. The results have been horrific over the last five years for property cat.
“So, if you were supporting property cat reinsurance whether as a reinsurer like TransRe or a third party capital provider, you likely lost money in most of the last five years, maybe even all the five years. And we were no exception, we lost money four of the last five years in property cat,” added Brandt.
The reason for this, as Brandt explained, was the elevated frequency and severity of low attaching, un-modelled catastrophes, such as severe convective storms, floods, wildfires, and also the COVID-19 pandemic.
“So, you don’t blame capital providers to say enough is enough, I’m going to stand on the sidelines here and see if this market can correct itself. And that’s what’s been going on over the last year, the markets finally responded. Attachment points have gone way up, terms have tightened, and rates have gone up significantly. And so, that’s the market you’re experiencing in property cat right now,” said Brandt.
