Everest Re believes that the real estate market is in a favorable position as opportunities exist around the world and the market balances supply and demand, making it very easy to achieve the returns that Everest Re expects. I predict that there will be.
Shari Tibbitt, Everest Re’s deputy chief underwriting officer and global head of real estate reinsurance, will be speaking with a wide range of cedants at the APCIA conference in the Windy City this week. It has a bullish mood.
“We still see very good opportunities,” Tibbitt told APCIA Today.
“Retention will remain where it is.”
Tibbitt said that by January 2, headlines could indicate that the market is tight enough to sustain the newly achieved gains from the 2023 market reset, including higher interest rates and retention. I expect it to be high.
Regarding his outlook, he said, “I don’t think U.S. real estate interest rates will fall to a certain extent.” And the market’s much higher holdings won’t fall because the cedants can’t afford to buy them back.
“Remain will remain as it is,” she said. “They have a budget and they choose to spend it on additional restrictions. If they need additional restrictions, they will keep the retention in place,” she suggested.
In the real estate reinsurance market, reinsurer capacity and supply has gone a long way to filling the capacity gap that was supplied to the hard market in 2022/23, and this has led to Everest Re This motivated the implementation of a medium-term capacity increase, one of the largest capacity increases recorded in the cycle. Raised $1.5 billion in equity in 2023.
The May 2023 capital increase was used to expand the capital base to take advantage of growth opportunities during a challenging market period.
However, increases on the capacity side of the market are not ahead of the curve, with the demand side maintaining the pace and protecting the market from slippage from the treaty’s 2023 increase.
“There appears to be plenty of capacity,” Tibbitt said of the market, which has absorbed about 10% more capacity year-over-year so far in 2024. But she is “glad” that no upstarts have emerged to disrupt the party. Things may change if the APCIA rumors are true, but for now, things remain the same.
“I don’t think a lack of supply got us here,” Tibbitt said. “But we feel the market is healthy, responsible and disciplined.
“We don’t have excess capacity, but we think we have enough capacity to meet our needs in 2025.”
In an early round of talks with cedants at Monte Carlo Rendez-Vous, Tibbitt confirmed that cedents would bring in “even more real estate demand,” particularly at the upper echelons of the program.
“Those who want to buy at the top end of the program will find capacity there,” Tibbitt acknowledged. “Because the market thinks it’s a safer place.”
She talks about the impact insurance-linked securities (ILS) will have on the market after record issuance in part of 2023 and into 2024. But she feels the sector is not doing enough to scale. “Cat Bonds has a good place in the tower, but I don’t think there are too many.”
Property considerations
While Everest Re’s own interests are global in scope, Tibbitt has a particular focus on the Americas as he sees opportunities at the moment. “I think the Americas, Canada, the United States and Latin America,” she told APCIA Today. The forecast includes a warning to Canada that losses are “significant” and conditions will “improve.”
Everest Re’s previous foray into real estate and the real estate cat has seen the group move to lower frequency expected maximum losses and add pro rata agreements.
Tibbitt acknowledges that there is a trend toward pro-rata allocations, but he also wants to highlight the demands placed on such portfolios.
“This is the perfect time to partner with someone on a dollar-for-dollar quota share basis,” Tibbitt said, reiterating Everest Re’s view that conditions in the primary real estate market are ripe. For the best long-term partners, “we also operate on a pro-rata basis.”
He added: “This is a way we can support our customers without going back to aggregation structures or structures that are too expensive for customers or unattractive for reinsurers.”
“We also operate on a daily basis.”
We can see the results of this strategy starting to show in our second quarter results. Despite the generally positive numbers, reinsurance gross premiums written increased 16.5 percent to approximately $3.2 billion. The company said in its second quarter results that this growth was driven by a 31.4% increase in real estate pro-rata, a 25% increase in real estate catastrophe excess losses, and an increase in casualty pro-rata ), which was an increase of 19.6%.
Everest President and CEO Juan Andrade praised the reinsurance division’s performance. “Our core reinsurance businesses continue to deliver strong risk-adjusted returns, as evidenced by our success with recent renewals,” he said.
Tibbitt said that while the 2024 natural disaster season has not yet forced a major change in Everest’s appetite, learning is clearly on the horizon.
Hurricane Helen had its biggest non-wind impacts far away from its landfall site and provided the season’s biggest lessons. This is an important consideration for reinsurance companies with a significant footprint in the southeastern United States.
“In the case of Debbie and Helen, the difference is that the impact of inland flooding and river flooding is greater than the storm damage,” Tibbitt said. “As an industry, we need to develop better ways to analyze inland flooding.”
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