Speaking to The Insurer TV as part of our #ReinsuranceMonth coverage, the executive noted the challenging year for property cat reinsurers after a sequence of losses including Winter Storm Uri, the European floods and Hurricane Ida.
“You have three choices as a reinsurer: stay the same and continue losing money from a cat product standpoint, as you have for the last four, five or six years; or you raise prices; or you decrease capacity,” he said.
On the subject of secondary perils such as flood, wildfire and convective storm, Donelan said reinsurers should not expect cat models to provide a solution.
He noted that more generally in cat some reinsurers had stopped looking at models as a tool but instead used them in lieu of underwriting.
“[You] have to navigate back towards the underwriting part of using models as a tool and not expecting them to have the answer to everything,” he said.
Questioned about pricing momentum in liability lines, Donelan argued that limit management is just as important to the underwriting process in casualty business to enable the market to stay ahead of loss costs.
“There are only three things that matter in my mind: limit, limit, limit. As limit comes down, and pricing moves up … you should have a much better outcome.
“Whether price is keeping up with trend, we’ll find out. But more importantly, limit with a combination of pricing moving up should give the market a chance to keep up with trend,” he commented.
Give and take
In the interview, the executive also highlighted the importance of give and take between cedants and reinsurers in fostering long-term relationships.
Late last year Sompo International rebranded with the tagline of “promise, trust, protect”, which Donelan said is at the core of what the carrier aims to do.
“It’s our goal to establish relationships with clients – that is clients we know we can trade properly with where there’s give and take and we can have a long-term commitment of each one being able to make a proper margin,” he explained.
The approach is particularly important in areas like cyber, where the product has proved challenging for insurers and reinsurers amid the surge in ransomware, coverage issues and deterioration of losses.
“We might not love the products but there are times we need to look at that product as a core product for clients and work around how we can support that,” he commented.