Soft re/insurance drives fluctuating underwriting discipline: Greenberg

by Artemis on May 25, 2016

Chairman and CEO of Chubb Limited, Evan Greenberg, has said that in the current softening re/insurance market cycle companies are “better off” underwriting in the off months of a quarter, as market pressures continue to drive fluctuations in underwriting discipline.

“Sometimes the market moves closer to us, when the market is more disciplined in terms of underwriting. Sometimes the market moves further away from us because others are willing to sell something at a price we consider too cheap or at terms we consider too broad,” said Greenberg, Chairman and Chief Executive Officer (CEO) of Chubb Limited.

Discipline and efficiency remain the key focus of global insurers and reinsurers in light of the softening landscape; with firm’s searching for profitability in a seemingly shrinking market as the supply/demand imbalance and benign loss period continues to test the strength of firms’ balance sheets.

With competition rampant from both traditional and alternative capital providers, recent renewals have been underlined by discussions of relaxed terms and conditions and reduced rates, resulting in a continuation of the buyers market that we see today.

In an effort to gain market share and remain relevant to the industry there’s been some evidence in the sector of companies taking on additional coverages that are perhaps less understood, and relaxing terms and conditions (T&C) to secure premiums, ultimately signs of ill-disciplined underwriting.

While tempting to take on as much business as possible at renewals to secure profits in future quarters, and also to aggressively release reserves in order to bolster quarterly returns (another trend of the current softening landscape), when losses do start to normalise those that lacked discipline risk potentially devastating overexposure.

However, owing to low interest rates across the globe investment returns have also suffered and insurers and reinsurers are increasingly looking for ways to navigate the softening landscape.

Discussing the competitive marketplace, Greenberg said; “January is always a competitive month relative to other months. In fact, I have to tell you, in the softer part of the cycle, you’re better off to try to write your new business in the off months of a quarter.”

“January is tough, April can be tough, and June/July is like January, the way people go after it. And they have some growth objectives that they want to achieve. So, there was some impact from that, and we see that,” said Greenberg during Chubb’s first-quarter earnings call.

It’s an interesting point. The highly competitive marketplace and other factors has driven rates down across the majority of business lines, with the most pronounced declines occurring in U.S. property coverages owing to the wealth of alternative reinsurance capital being largely focused here.

Long-standing and strong client relationships can help to ensure business at renewals, but with competition at the height it is, securing new business can be difficult, absent the loosing of T&Cs or accepting business at potentially unsustainable rates.

“So, on one hand, we’re in a market where it’s competitive and some things are being sold at prices that are below costs we think are reasonable. On the other hand, there is this pull and desire for stability and familiarity, and that is drawing more towards us,” said Greenberg.

Essentially, Greenberg suggests that Chubb remains disciplined in its underwriting during the softening cycle and isn’t afraid to walk away from unattractive business just for the sake of earning more premiums.

And, the firm’s position in the marketplace following its merger with ACE that sees both entities operate under the familiar Chubb name ensures that clients are keen to transact with firms that they are familiar with and have a solid relationship with.

Underlining the firm’s underwriting discipline its Q1 results revealed that it pulled back on certain business lines, and while market conditions impacted its total premium revenue, this was down to Chubb maintaining underwriting discipline.

Patience, discipline and innovation will likely remain the focus of re/insurers in the coming months as pricing continues to search for a floor and losses remain benign. Ultimately, when the market does start to turn those that lacked discipline could start to see profits deteriorate faster than during the softening cycle.

There will undoubtedly be winners and losers of the current market environment, and new structures, strategies and also more mergers and acquisition (M&A) activity will likely continue to reshape the challenging landscape.

Securing business in the off months of a quarter poses its own challenges and benefits, so it will be interesting to see what approaches insurers and reinsurers adopt in the coming months as reserves dwindle, returns reduce, and competition intensifies.

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