Property cat: Now is the time for providers to commit
MS Reinsurance’s Chris Hayward outlines why a strategy for delivering property catastrophe capacity is more essential than ever amid increasingly difficult market conditions…
Property catastrophe coverage is among the most important purchases that many buyers of reinsurance make. For most, it is particularly painful that rates have been hardening this year and will continue into next year. Recognising the reality of this situation is essential if we are to provide appropriate solutions in the face of adverse market and environmental conditions.
It is well understood that one immediate cause of hardening rates is the general inflationary environment – an economic situation not seen in developed markets for at least 20 years. Catastrophe losses frequently suffer from demand surge inflation and this issue will be exacerbated when inflation is being driven by energy shortages and supply chain disruptions. Rising claims, the risks of climate change and increasing secondary perils are also driving current rate rises.
Buyers can work with reinsurers by getting their underlying portfolio values and pricing as accurate as possible and showing that they have implemented a comprehensive approach to addressing inflation. This approach provides reinsurers with confidence in the exposure presented and allows for the most efficient pricing. Unfortunately, those that do not take this comprehensive approach will see more significant changes.
Losses continue to affect the market, driving a general tightening of supply, with many reinsurers moving away from lower attritional layers, reducing their overall peak-zone capacity or both.
Conversely, we expect that the demand for increased reinsurance limits seen at mid-year renewals ($3bn-$4bn from nationwide carriers) will continue into 2023. The combination of decreasing supply and increasing demand points to pricing continuing to harden, regardless of what happens this wind season.
Reinsurers, such as MS Reinsurance (formerly MS Amlin AG), which are still committed to the property cat market will have a vital role to play.
Commitment is key
MS Reinsurance is focused on further developing a well-diversified portfolio of reinsurance risks. Property cat is an important part of that portfolio as it is such an important purchase for many of our clients. We focus the allocation of our catastrophe capacity with clients that can help us achieve our strategic target of a more diversified portfolio.
The difficult current environment in the property cat market is the result of many factors, including a reliance by the industry on capacity that had no connection to the product beyond liking the potential returns. Once the perception of those potential returns changed, that capacity was gone.
Many buyers of property cat reinsurance have come to recognise that, for such an important purchase, commitment matters just as much as price.
Reinsurers, like MS Reinsurance, that demonstrate a commitment to providing the products their clients need, that understand why and when they provide property cat capacity and are committed to building mutually beneficial relationships with clients will prove to be business partners with value well beyond the capacity they provide.
Chris Hayward is chief underwriting officer, Bermuda for MS Reinsurance (formerly MS Amlin AG)