Positive about the opportunities he sees to grow Ascot’s book of business for the remainder of 2020 and into 2021, Brooks is also mindful to take a cautious approach and focus more on achieving the “optimal portfolio”.
Speaking to The ReInsurer, Brooks said: “There’s obviously a lot of talk about disruption in that [reinsurance] market, particularly in the retro market with trapped capital.
“Obviously we have the Lloyds’ platform, we have our Bermuda platform and we also have our ILS sidecar for retro, so we think we’ve got opportunities across the platform to take advantage of what we think might be a hard market in the reinsurance sector.
“But we actually think this comes with a significant health warning,” he said, due to certain areas still being underpriced and not reaching levels which can be considered sustainable for the long term.
“On the reinsurance side, we actually feel that the international business is still underpriced and yes, there are opportunities on the retro side, but it warrants a huge amount of capital to be deployed to support the writings in those classes.
“So for us, at Ascot, it’s really about building the optimal portfolio, but to do that we need all the other lines of business to move in correlation with the reinsurance business to give us a balanced portfolio.”
Continuing on pricing, Brooks also said that it’s not back to the levels that some in the industry have suggested.
“When we look at pricing, if you take into account climate change and also the un-modelled losses coming into the pricing mechanisms now, we actually feel that the reinsurance market as a whole is not back to 2002/2003 as some allude to, or 2006,” he said.
“We feel that for some areas of the business it sits between 2012 and 2014.”
While he can see why start-ups want to move into the reinsurance space – “because it gives almost instant gratification” – for Ascot, it’s about building the optimal portfolio.
“Everyone is talking about rate rises across the majority of their portfolio, which is very very encouraging, but we think the market needs to take a step back and look at itself in the mirror and actually think long and hard about where its coming from and by that we mean, ‘how much have we really given off in rate since 2012?’”
Looking at the compound rate reductions across all classes, Brooks says they’ve been “profound” over that time.
“We’re now sitting here saying the market is going to improve but we need to be very conscious about the base we’re coming from,” he said.
The one area Brooks is concerned about is the casualty business, particularly with the low yields.
“When you look at the compound reductions with the low yields, you look at the rate you need to get that back into profitability and it shouldn’t be lost on everyone that the luminaries who have been talking about their second quarter results, all of them have said that the pricing increase we’re seeing are really due to trends we were seeing in the business pre-Covid and pre-Laura.”
For Brooks, although he is enthused by the rates going up, he asserts that the market has to know where it’s come from to know how far it’s got to go.
“A good example for that is the D&O market which has had a lot of press about substantial rate rises. This is fine, but go have a look at the number of class actions filings there have been in the past 24 months and ask, is this rate increase we’re getting sufficient to offset the macro economics that are going on at the moment.”