Reinsurers are pushing for reinsurers to offer lower-cost real estate cat coverage and resisting efforts to further reduce ceding fees for U.S. casualty shares. Skoll’s Jean-Paul Conocente said the industry first needs to address underpricing at the primary level.
Monte Carlo’s reinsurance brokers have called on reinsurers to reverse some of the improvements they made last year in what has been described as the toughest market for cats in generations, particularly the significant improvement in retention rates.
These increased holdouts mean insurers have been hit with a large portion of claims resulting from large losses from secondary events such as severe convective storms over the past two years.
There was an argument that reinsurance companies risk losing their relevance if they continue to provide coverage that exceeds the small and medium-sized attrition factors that have recently caused insurance losses.
In an interview with The Insurer, Scor P&C CEO Conosciente said there will be tremendous pressure from brokers and customers to shorten holding periods and secure holding period protection cover. I admitted it.
“I think the problem is actually the proper pricing of these risks. Because the risks are not priced properly, it creates a problem for insurers who have greater retention power. I want to pass it on to people.
“But I think what we need to do as an industry is fix the problem and charge a fair price for our products,” the executive said.
He said Skoll would likely show “significant resistance” to lowering retention periods or supporting retention period protections, or seek pricing that insurers would likely view as uneconomic.
“It’s on the front end and that’s the problem…insurance companies aren’t charging enough. This isn’t a hurricane, but it’s a tornado, it’s a flood, it’s hail,” Conosciente said.
He added that the problem of small and medium-sized cat activity is not unique to the United States, citing damage in Canada this year, including the Calgary storm, flooding in Quebec and Toronto, and wildfires in British Columbia.
“I think this goes back to the fact that property and casualty insurance is based on past 10 or 20 years of experience, but it doesn’t really include expectations for some increase in this small climax loss. “In the United States, it’s very much driven by recent events, but it’s not a systematic push to drive up tornado hail rates,” he continued.
The increasing frequency of small cat losses across the United States also calls into question the merits of writing a book about the nation’s geographically diverse cat business.
“This is what we have seen with reinsurance: if you don’t have the right price for your frequency coverage, your dispersion gets ‘worsened’ and you get hit everywhere at the same time.
“That’s why, as a reinsurer, we are in a position to stay above trend levels in frequency until prices are right at the insurance level. If so, we think we can discuss reinsurance,” Conosciente added.
Still bearish on casualties
Perhaps the biggest focus at this year’s Monte Carlo Rendezvous will still be the US casualties, with Conosciente saying that while Squall has been bearish on the sector for several years, the rest of the market is now “catching up.” pointed out.
“The last few years have not developed as expected. Last quarter, several insurers finally acknowledged that price improvements have probably not kept up with loss trends in recent years,” he said, adding that this view He added that he agrees.
“There are two aspects. One is capacity and the other is price. I think capacity is shrinking,” the executive continued.
He pointed out that while some of the more “traditional” players, including Skoal, have exited in recent years, others, including several Bermuda airlines, have entered with a view to growing in the market.
“I think even those markets are starting to retreat,” Conocente said.
The executive disagreed with the notion that insurer limit reductions in the hard market that began in 2019 were a factor in accelerating claims resolution, and instead blamed higher loss costs on litigation financing. He said that.
“The returns that they are actually delivering and promising to investors are over 20% and they have a track record to show that,” said the CEO of Squaw Insurance.
Mr. Conocente also commented on the potential for reinsurers to have more success by further lowering their ceding fees.
The argument against a more aggressive stance by reinsurers on this front is that historically insurers have decided to retain more of their net business rather than abandon the economics of loss assignment share transactions. It was said that it had just been done.
“I don’t think that’s the case anymore. In this way, the brokers justified the 30% plus commission by saying that if we lowered it to 22%, the insurance companies would no longer budge. It is.
“But I think the fear factor is widespread. Even if ceding fees return to reasonable levels, I don’t think companies will stop ceding,” he suggested.
Instead, the responsibility for taking steps to improve profitability will be shifted back to insurers.
“So they are being forced to recommit to lower pricing for their products. Injuries take longer…bleeding is more gradual, but this update will be significant to address that issue.” I think so,” Conocente continued.
Time for change?
He said that while the industry’s recent focus has been on nuclear judgments, small claims inflation is also driving loss cost trends.
And he emphasized that the commercial vehicle challenges are indicative of broader problems in the U.S. casualty market.
“Interest rates[on U.S. commercial auto]have risen to a level where insurance companies think the product is profitable, but in reality it’s still not the case because the loss trend is accelerating and increasing,” the executive said. said.
Asked whether reinsurers are creating problems by giving cedants significant economic benefits by voiding quota shares, Conosciente agreed, adding that the margins allowed to insurers emphasized.
“They could try to make the drastic decision to exit all programs completely, but I think what reinsurers tend to do is adjust their stock prices downward to adjust to their outlook.” he said.
He drew parallels with how the real estate cat reinsurance market finally strengthened across generations last year.
“Suddenly there is a shortage of capacity and insurers are having to pay dramatically different prices and different structures to attract capacity. I don’t know if this year will be an update on that, but I think it’s getting progressively worse.
“We had two camps last year. We had some Europeans who were really bearish and we had some Bermudians who were really bullish. I think everyone is in the bearish camp this year. How bearish are they? ? We’ll have to take a look,” he concluded.
