Odyssey Group president and CEO Brian Young reflects on more than three decades in the reinsurance sector.
You have now worked in the reinsurance sector for more than 30 years. What do you see as the three biggest changes during that time?
The expanded role of actuaries is certainly one. A little known fact, when I joined TransRe out of college in 1988, I was the very first actuarial employee on their payroll. I don’t know how many actuaries work there now, but I can tell you that Odyssey employs more than 90 today in nearly every facet of our business. The second, and perhaps the most obvious change, has been the advent of technology. We didn’t have cell phones, laptops or the internet when I started, which leads me to the third biggest change: the world of (re)insurance has gotten smaller. Technological innovation has brought us closer together, but so has the ease of air travel, the globalisation of economies and culture, as well as the significant amount of cross-border consolidation in our industry over the last two decades.
For the past 25 years you have worked at Odyssey, which is celebrating 25 years as part of the Fairfax group. How has the business evolved over that period?
I joined the company shortly after Fairfax acquired Skandia America and renamed it OdysseyRe. At that time in 1996 OdysseyRe wrote less than $300mn of US reinsurance and it wasn’t very profitable. The acquisition of TIG Re in 1999 and the integration of CTR’s business into OdysseyRe in 2000/1 gave us critical mass and provided a launching pad for the post-9/11 hard market. In 2000 we wrote around $900mn and by the end of 2004 that figure had grown to $2.7bn. The biggest change, however, has been the growth of Odyssey’s insurance business over the last two decades, especially Hudson. In 2001 Hudson wrote approximately $55mn in premium and this year it will write in excess of $2bn. Collectively, Hudson and Newline now account for half our premium, and provide excellent diversification to OdysseyRe’s global reinsurance business.
How does the current hard market differ from others you have experienced during your career? Do you believe rating momentum will be sustained into 2022?
Previous hard markets have been driven by heavy losses, weakened balance sheets and panicked reinsurers pushing the insurance market for positive change. Today it’s different. Capital is robust and loss reserves are generally considered adequate. What’s propelling this hard market is the return of insurance-led underwriting discipline driven by deteriorating claim trends and inflationary pressures. Deviating from prior market practice, reinsurers have largely confined themselves to the role of cheerleader in this hard market cycle. I do expect rating momentum to continue for the next 12 to 18 months, albeit at a more moderate pace, as negative claim trends show no sign of abating.
“What’s propelling this hard market is the return of insurance-led underwriting discipline driven by deteriorating claim trends and inflationary pressures”
How has the heightened catastrophe experience of recent years impacted your appetite for this business?
Our appetite for cat risk has reduced. Unfortunately, pricing has not kept pace with increasing exposures and escalating claim trends. It’s not just about price, it’s coverage too. Global towers that offer little territorial diversification; multi-year placements; aggregate structures; the inclusion of un(der)modelled secondary perils, top-and-drop features; cascading layers; expanding hours clauses; RISE provisions; multiple reinstatements; free reinstatements – it’s a long list. The coverage creep over the last decade has been significant and it has not been adequately priced.
What measures has the company taken to optimise performance in light of this challenging environment?
Very simply, focus on profit. Where margins are expanding, do more and where they are not, do less. We have always been patient for growth. It’s a strategy that has worked well for us, illustrated by the fact that we have made an underwriting profit nine years in a row. Fortunately we have seen plenty of opportunity to expand profitably in this market. We will finish 2021 writing in excess of $5bn in gross premiums, more than double the size of our portfolio five years ago.
What is your advice to a young underwriter starting out today?
Have a clearly defined risk appetite; never sacrifice your underwriting principles or your integrity; focus on profit, not premium; and last but not least, never stop learning, always be curious.