Speaking at the Bank of America Merrill Lynch 2018 Insurance Conference, Mike McGavick, the Chief Executive Officer (CEO) of insurer and reinsurer XL Group, said that despite rate improvements at the Jan 1st renewals, the market is still broadly underpriced.
“I think the market very broadly is still underpriced. There are very few lines where I would say, ‘boy that’s a really juicy piece of business.’ I just think there’s been so many years of heightened competition,” said McGavick.
The CEO’s comments echo those of numerous insurance and reinsurance industry participants and observers, which, in the aftermath of third and fourth quarter 2017 catastrophe events noted much-needed rate improvements at 1/1, but not without stressing a need for further improvements throughout 2018.
Rate improvements varied at the January renewals, with loss-affected lines witnessing the steepest increases, while overall, the post-event price surge was seen to be dampened by the abundance of both traditional and alternative reinsurance capital, suggesting the potential for a new norm of flatter pricing cycles for the industry moving forward.
“I’m not at a point where I’m satisfied with anything, I’m just pleased that we’re seeing a firming market as opposed to this deteriorating market that we were fighting through before. Obviously, I think the cat space got a little bit better price but I don’t think it is to what we would consider where it needs to be, but it got more attention because you had loss-affected accounts that got meaningful responses,” said McGavick.
During his talk, McGavick explained that each time a meaningful series of large events occurs, there are lessons to be learned, and in response it’s important to react and respond to the new market dynamics.
Looking at the market as it is now as opposed to before the impacts of hurricanes Harvey, Irma, and Maria, the powerful Mexico earthquakes and the California wildfires, McGavick highlighted “broadly strengthening rate in the primary market,” which he personally believes is “very sustainable.”
“Meanwhile, on the reinsurance side, there wasn’t some big spikey reaction to this, mainly because of all the alternative capital that’s around. Well we look at that and say, OK, that too is a lesson for us to learn from and act upon,” continued McGavick.
It will be interesting to see how companies continue to respond to the changing market landscape, shifting their exposures in light of improved pricing and subsequent opportunities, while finding the balance between their primary and reinsurance operations, all the while keeping an eye on the increasingly influential alternative capital space.