Reinsurance revolution is disrupting property re/insurance specialists

by Artemis on February 2, 2015

The reinsurance “revolution” has become so disruptive that it is now forcing companies that were once specialists in property insurance or reinsurance to look elsewhere for premiums, according to Baldwin & Lyons Inc. CEO Joseph DeVito.

Baldwin & Lyons, a U.S. property and casualty specialist with a reinsurance arm and a focus on solutions for the transportation sector is one such firm itself, having pulled back from property reinsurance, for which CEO DeVito is grateful.

“Turning to reinsurance, the only good thing I can say about the property market is that we are out of it, with our final policy set to expire on June 30th ’15,” DeVito stated during the firm’s recent earnings call.

The firm continues to provide some casualty reinsurance products, but the impact of the challenging reinsurance market has clearly been felt. DeVito said; “Our casualty reinsurance products continue to perform as expected, however there has been a significant impact of the highly competitive property market on our relationships and programs in this space.”

DeVito went into some detail on the impact that the evolution of the reinsurance market is having on property underwriting specialists.

“As the revolution in reinsurance continues to evolve, the disruption has forced historical property specialist to look elsewhere for premium,” he said.

Some of the effects of the revolution and disruption affecting reinsurance, that DeVito has noted, include; “Those who already had a presence are demanding a larger one, some are openly trading program share for a willingness to accept hard to place risks.

For Baldwin & Lyons itself; “The conditions that created an opening for us to enter this space several years ago have changed and we have let deals go when the margin erodes to the extent the risk-reward proposition is no longer attractive.”

Joseph De Vito has a long history in the insurance industry and has worked in one unit or another of Baldwin & Lyons since 1981. As a result he has seen a lot of change in his career in insurance, but he says that change has accelerated dramatically in recent years.

“In my experience our business has changed more in the last five years than it did during the previous 37 that I have been around,” DeVito explained.

“There is too much capital searching for a home. There is no equilibrium between supply and demand. Writing for surplus, the historical measurement of capital adequacy and leverage is at an all-time low. Despite the fact that fixed rates of return are also at historically low levels, this excess supply is continuing to put downward pressure on rates,” he succinctly explained some of the problems facing both insurance and reinsurance sectors.

And the Baldwin & Lyons response to the challenging market and this revolution in insurance and reinsurance? To double-down and focus on underwriting discipline, with a “relentless focus” on producing an underwriting profit and proactively navigating the disrupted market, as well as making best use of reinsurance opportunities for itself.

While the market evolves, disrupting incumbents and forcing some to relinquish what were once core markets, there are of course others who will continue to underwrite certain pressured lines. Only time will tell whether these efforts are disciplined and time will show up those that underwrite at levels below their cost-of-capital.

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