In keeping with a recent theme, Jay Fishman, Chairman and CEO of U.S. primary insurer The Travelers Companies, Inc., said that he expects the property and casualty insurance and reinsurance market will have a meaningfully lower level of cylicality.
Fishman has always said that the alternative reinsurance capital and insurance-linked securities (ILS) trend does not have a meaningful effect on Travelers business and that his firm feels insulated from these market trends due to the business they focus on.
Comments made by Fishman during Travelers third-quarter earnings call this week suggest that he is ready to acknowledge that the effect of recent market trends has now reached the stage where no company can be completely insulated from them.
“I personally believe that the property and casualty business will have a meaningfully lower level of cyclicality, I never said zero, but always said a less, lower amplitude of that cyclicality,” Fishman said during the earnings call.
Fishman cited not just capital trends as a factor in the flattening of the cycle for property and casualty insurance or reinsurance business, but also analytics and data which he sees as a very important factor for the cycle.
Fishman said that at Travelers they focus on maintaining their margins, which doesn’t suggest that they need price increases every year on every account, rather it means focusing on the loss trends and the granular data available to make pricing decisions, rather than the headline numbers.
Less fluctuation in terms of pricing is actually good for the agent, the customer and the market, Fishman believes.
“Wild cyclicality, up or down, is actually bad for everybody and better insight, better data, better analytics is actually better for everybody. You get better analysis, you get better, more thoughtful pricing related to risk,” Fishman explained.
So Fishman expects a flattening (softening?) of the peaks and troughs of the property and casualty insurance cycle, which will no doubt ensure that any flattening of the reinsurance cycle persists as well.
It’s interesting that Fishman cites analytics and data as key influencing factors on the cycle, something we have discussed in our recent articles on the potential for the cycle to be flattened, or even killed. Clearly we believe that the entry of efficient capital from third-party ILS investors is a major factor in the future insurance and reinsurance cycle, but technology advancements will certainly have a major part to play in the future of the re/insurance cycle as well.
The key message is that as capital increases in efficiency and better understands its own cost and risk appetite, while technology improves the view of risk and granularity of data improves pricing, the cycle should continue to flatten.
The insurance and reinsurance cycle of the future, based purely on actual changes in the understanding of the risks underwritten and the availability of capital or capacity, may not be that far off.
Further reading on the future of the reinsurance market cycle:
– Evolving market, changing dynamics may end the traditional cycle: Willis.
– Capacity drives the reinsurance cycle, least conservative sets the price.
– Will pension funds, alternative capital & ILS kill the reinsurance cycle?
– Despite capital on sideline, reinsurers expect payback. Should they?
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