In the ever-changing landscape of the re/insurance industry, the focus on rate increases has been intense in recent times, but according to Mirek Wieczorek, Head of Reinsurance at ICW Group Insurance Companies, there’s more to the story than just rising rates.
“It’s only one side of the coin,” Wieczorek states in an interview with Reinsurance News. “The whole market is enamored with rate changes, I’m more focused on net rate change and how it affects the loss ratio.”
Wieczorek expects rate momentum to decelerate in 2024, highlighting areas like Directors and Officers (D&O) insurance and cyber insurance as pockets of the market where this is already happening.
“In cyber, rates more than doubled in the past couple of years. So, when they drop, let’s say 1/3, it’s still a lot more rate compared to what we had before the onset of the hard market. But this is just the rate,” he explained.
“It is only one side of the coin. The other side of the coin is the loss cost. So, we always look at both and try to see where the loss ratio is heading. We need to be focused on the loss side and the emerging inflationary trends on the loss side.
“Anytime we meet with our clients, we always engage them in a conversation about two sides of the coin. As you can imagine, everyone wants to talk rate to show what a fantastic job they are doing generating more revenue. But we also ask them about the money going out the door – inflation, both social and economic,” added Wieczorek.
Interestingly, Wieczorek told Reinsurance News that while it’s important to enjoy the hard market tailwinds, it’s vital to remember what hard market times are for.
“I’ll be a bit rebellious and say that I believe the hard market times are to build your portfolio for the soft market time. The business tends to be sticky. Every business, not only insurance, whatever you do tends to be sticky, and there is always a pressure to renew expiring lines. So, if you take big bites during the hard market cycle, you might be facing indigestion during the soft, soft market times,” he said.
“So, I always remind myself and my colleagues that the hard market is the time to build your portfolio for the soft market times. It is not easy to walk away from the business you have on the books. We all face ever-present corporate pressure to deliver the plan, and often plans are a little bit blind to a changing market environment because no one can foresee the upcoming changes. You need to adapt to it,” he added.
According to Wieczorek, the most successful underwriting teams and individual companies are the ones that build their careers not on how many times they say yes to renew the program, but on how many times they say no.
“It’s not easy to say no and be successful. So, underwriting and pricing discipline is not easy to maintain, but we have to think about it seriously all the time. When the market is competitive and the rate momentum will dissipate, we must not forget the cyclicality of the reinsurance market.
“I believe the companies that implement this strategy will be the most successful in the long term,” said Wieczorek.
