Industry executives speaking at the annual S&P Global Ratings 2018 Bermuda Reinsurance Conference have called on market players to expand their businesses and turn their focus from pricing.
Executives said that global reinsurance companies would benefit from moving away from a decade-long focus on pricing, which remains competitive and pressured, and instead look for other ways to grow their businesses in a challenging market landscape.
Any price momentum seen at the start of the year in response to 2017 catastrophe events has faded through 2018, and it remains to be seen if pricing will keep pace with the sector’s cost of capital.
As a result, panellists told conference attendees that reinsurance companies must shift their focus from pricing and place their efforts elsewhere.
“I feel like we’re stuck in a 10-year-old conversation. Right now there’s very little price discovery in the market. It’s all speculation about what’s going to happen. Focusing on price is only half the conversation,” said Kevin O’Donnell, Chief Executive Officer (CEO) of RenaissanceRe (RenRe).
While catastrophe losses in 2018 are far below the levels seen last year, it’s by no means been a benign year for losses. Nevertheless, S&P expects the combined earnings of U.S. insurers and the international reinsurance markets to absorb year-to-date cat losses, although, losses could exceed annual catastrophe budgets for some players.
Taking 2017 as an example, and S&P states that the current level of industry losses from year-to-date cat losses are unlikely to have a positive impact on pricing for reinsurers. However, hurricane Michael’s impact could support demand for increases by the primary market, says S&P.
Maria Bonaccorso, Executive Vice President (EVP) and Chief Financial Officer (CFO) of PartnerRe, explained that companies need to start managing their businesses assuming the current market environment.
And, whatever happens at the upcoming renewals, “it’s not like there isn’t money in the pipeline to pay for rate increases,” added Mike Sapner, the CEO of TransRe.
Michael McGuire, CFO of Sompo International, also commented on the rate environment: “I think people are reaching the breaking point on what is a reasonable return for the risk we’re taking.”
Panellists agreed that regardless of the experience, there is a lot of exposure out there in the world, underlined by the growing protection gap in both mature and developing markets. Outside of natural catastrophe risks, including flood, emerging and expanding risks such as cyber and the new focus on mortgage risks were also highlighted by speakers as potential growth avenues.
Another challenge facing reinsurers in the current market climate is regulation, and Jay Bullock, EVP and CFO of Argo Group International Holdings, commented on this: “The biggest challenge from regulation is trying to get a very level playing field across all markets. It feels like we spend an awful lot of time trying to answer the same or similar questions in multiple jurisdictions. There’s just not a consistency, and that makes it very difficult to plan your business.”
Times are challenging for reinsurers, and with the abundance of capacity from the alternative market looking to play an increasing role across the insurance and reinsurance-linked space, and absent a truly unprecedented cat event or loss event, it seems unlikely pricing will improve at the upcoming renewals, a viewed seemingly shared by the industry.
“There’s growth that we can all enjoy – finding risks that aren’t covered. There are places where we can make the pie bigger,” said O’Donnell.
“We’ve got to do a better job of delivering value by driving cost out of the business. We’ve got to work to get to that point,” added Sapner.
