The testing, softening reinsurance market is “creaking” as interesting developments start to take shape and movements in the market begin to unfold, underlining the need for discipline in the current environment, says Lancashire Holdings Chief Executive Officer (CEO), Alex Maloney.
Discussing the potential for a hard market in the coming months with Morgan Stanley’s European Insurance Analyst, Xinmei Wang, Maloney said “it’s definitely more interesting and things are happening, and I think you’re seeing the market creaking, there’s a lot of interesting things happening.”
He continued to explain that some companies are now issuing profit warnings and pulling back on lines where margins are simply to thin, which although undesirable, does show market discipline and a move away from potentially dangerous underwriting practices that were reported at various renewals during the current soft market cycle.
It remains unclear exactly how much further rates will fall in the global reinsurance sector but with many of the pressures from previous years persisting into 2017, it’s believed unlikely that a turn in the market will happen in the near future.
Importantly, Maloney explained that the trend of reduced profit warnings and declines in underwriting in certain business lines is all happening “before a cat loss happens or anything major,” warning that if the next large loss event occurs in 2017, “things could change quickly.”
And for Lancashire it’s all about the opportunity and making sure it’s positioned well to take advantage of a turn in the market, with Maloney telling Wang that if the market improves the firm will take on more risk.
“We just want to be ready when the opportunity comes, but you just have to be disciplined now, and that’s what we’re trying to achieve,” said Maloney.
Exactly what might drive a turn in the current reinsurance market cycle remains uncertain, with the abundance of traditional and alternative capital both in and outside the sector leading some to suggest a single large catastrophe event might not be sufficient.
Perhaps it will take a series of large events or some other kind of shock to the market before pricing begins to turn, but until then, it’s vital companies remain disciplined and position themselves well for when the inevitable does happen.
