Endurance reduces limits, ups retro coverage, in challenging market

Bermuda-based specialty provider of insurance and reinsurance products Endurance Specialty Holdings has pulled back on some reinsurance lines, reducing the limits it deployed, at recent renewals due to the competitive pricing environment, commented CEO John Charman on the reinsurers Q2 earnings call.

Endurance saw pricing in short-tail reinsurance lines, especially in peak catastrophe zones such as Florida, decline by as much as 10% to 20% at recent renewals, Charman said. Endurance managed to assemble an attractive portfolio but deliberately reduced the limits deployed as pricing was unattractive.

Charman said that Endurance also took advantage of pricing and abundant capacity available in Florida by purchasing retrocessional reinsurance protection for itself. The retro protection, for Endurance’s catastrophe portfolio, was for premiums of $22m, according to CFO Mike McGuire, and this will impact net written reinsurance premiums in the third quarter.

Endurance substantially reduced its participation in a number of large peak risk zone property programs, reducing its probable maximum losses as a result. Charman cited a deteriorating risk / reward characteristic in this business as the reason for the pull-back in certain peak zones.

Going forwards, Charman warned that growth may not be a feature of Endurance’s reinsurance operations while the market remains so competitive. He said that Endurance would focus on profitability, while reducing volatility, as he is convinced that growth will be a challenge in an increasingly competitive market.

John Charman commented; “Overall, if market conditions persist I do not expect our reinsurance business to grow significantly over the next few years. But the business will be restructured into a much more profitable operation with expected reduced volatility.”

Interestingly, neither Charman or the other executives on the earnings call named third-party capital, ILS or the capital markets as a contributing factor to the challenging market Endurance finds itself dealing with. Previously Charman has said that he aimed to find a way to bring third-party capital within the core structure of the Endurance business, rather than it being a bolted on afterthought.

At this earnings call Charman and the Endurance team were certainly not giving anything away about any plans or activities in third-party reinsurance capital management. With Jerome Faure, an experienced ILS sector professional, now leading the Bermuda reinsurance operations we can only suppose that Endurance is devising a strategy to ensure it does not get left behind while all of its competitors establish capital market units.

The last thing Endurance, and Charman himself, will want is to get left behind. But perhaps it is keeping its cards close to its chest as it looks for a more holistic way to bring third-party capital into its underwriting on a sustainable basis.