Maintaining discipline in a loss environment

Jason Busti, president, North America at Axis Re, explains some of the key trends in the North American reinsurance market.

What have been the biggest reinsurance trends in North America over 2023? Have there been any notable differences between Canada and the US?

The reinsurance market in North America is complex, and while we expect firming conditions to continue, we should not become complacent or consider the loss trends fully addressed. Whether focusing on climate risk, social inflation, or other specific loss influencers, the ability to predict outcomes has never been more challenging. Given this elevated uncertainty, the ongoing trend of rate increases, structure changes and reduced ceding commissions will have to continue. While this has been most pronounced on property as of late, we expect this will continue across other lines of business, particularly in the long-tail space.

In terms of comparing Canada and the US, the legal systems are entirely different – as are loss dynamics. This market is also experiencing an impact from social inflation. For example, Canadian insureds with auto fleets are being impacted by US-type losses when they are crossing the border between the two countries. This is one of several factors that need to be addressed and will result in coverage and pricing actions.

What are the biggest challenges and opportunities in North American reinsurance?

The current market is dynamic, and different product lines are evolving differently. Given this environment, we are observing diverging strategies between companies, and opportunities very much depend on each approach. At Axis, our strategy is to be a focused specialist reinsurer. Our focused appetite enables us to differentiate by line of business and work with our partners to find intersections for mutually profitable growth.

The biggest challenge is loss trends and, related to that, ensuring the right pricing and terms are achieved. While a meaningful rate has come into the market in recent years, the loss side of the equation remains complex and unpredictable. Headwinds include social inflation, increased medical costs and emerging treatments like cell and gene therapies. Further, there are lines in the primary insurance market that are already showing signs of softening. Financial lines, especially public D&O, is one example. As a result, this business should be under elevated pressure in the reinsurance market.

What is your outlook in North America for the coming renewal season?

The expectation is that reinsurers will continue to be disciplined and apply further pressure on terms. As we go into 2024, we anticipate an increased focus on the profitability of all lines and increases in rates and reductions on ceding commissions – especially where underlying rates are not covering the trend. There is no reason to chase premium at the expense of profitability given the challenging loss environment that exists.

What developments are happening in this space on the diversity, equity and inclusion (DEI) side?

There are many exciting DEI developments across the industry. At Axis, our approach to DEI aims to strengthen a sense of inclusion and drive employee engagement – ultimately fostering a culture to retain and recruit top talent.

While the momentum around DEI is exciting, there is a significant talent gap in the North American market. This is especially pronounced in Canada, which has a smaller pool to begin with. As industry experts continue to reach retirement age, the talent pipeline to replace outgoing thought leadership is limited. Further, the expansion of many broker firms and the establishment of start-ups and MGAs have put further stress on the remaining talent.

We need to continue to work as an industry to increase diverse senior leadership representation by focusing more on internal mobility and career development and creating a foundation for the future through recruitment and expanding diverse pools of talent.