Berkshire Hathaway returns to write retrocession as renewal nears

As the retrocessional reinsurance market deals with a crunch of capacity, trapped collateral from ILS players and the disappearance of a core product from the market, some traditional players are returning and increasing their appetites, including Berkshire Hathaway, we can report.

Berkshire Hathaway’s return to a market segment has always been one of the clear signs that market conditions and pricing are improving.

We’re told that the reinsurance giant has been actively quoting and binding some lower down layers of retrocessional reinsurance program renewals in recent days, as the retro market begins to build at least a little pace as the January 2020 renewals fast approach.

The retro component of the reinsurance renewals had been incredibly sluggish up until very recently, almost at a standstill as quoting was very slow to get started.

Now, our market sources tell us things are picking up somewhat, with some returning players such as Berkshire Hathaway making their presence felt in the ultimate net loss retrocession renewals, while other large traditional players like Everest Re are also showing signs of an increased appetite for underwriting retro this renewal season.

On Berkshire Hathaway, Warren Buffett’s reinsurance division has been active in both quoting and binding retro renewals, but largely in the lower layers of programs, where the returns and potentially the price rises are at their most significant.

We’re told the company is writing a bottom layer of a retro program for Australian re/insurer QBE, albeit just following standard market pricing, our sources said.

Berkshire Hathaway has not been a notable force in the retrocesssion market for a number of years.

The type of business they are writing this year in the retro market is similar to where Berkshire Hathaway participated a number of years ago, but it hasn’t been particularly active for a while and this seems a relatively significant increase in the firms appetite for this risk.

Berkshire Hathaway has particularly deep pockets and its increased appetite for retro, which also signals an increased appetite for catastrophe exposure as this goes hand in hand with most low down retro layers in the market, could help to fill some of the gaps in the retro market.

Programs are increasingly getting placed, we’re told, with a number of well-known companies such as Lancashire and Fidelis either already closed, or close to closing on their retro needs for this renewal season.

In addition, Everest Re is said to be writing some lower down layers of retrocession renewals this year, as well as having written some of its own pillared retro product Purple, our market sources said.

One source said that it’s likely Everest Re will write as much of its pillared product as it can, seeing an opportunity here after the exit of the CATCo product, but that it is also writing UNL retro as well, including some of the lower down layers where Berkshire has shown its appetite to be.

Retro pricing seems to have softened slightly across the board in the last week, at least expectation wise, compared to where any quotes sat a few weeks back.

Sources said that this is natural, as buyers and sellers find a common ground and meet somewhere in the bid and ask spread.

Another player said to have been quoting quite actively, but not binding, is hedge fund DE Shaw, which we’re told has relatively high price expectations compared to others at these lower layers.

Overall, it is good news that retro program layers are now getting bound, while the available capacity from players like Berkshire Hathaway could make the difference for some companies that were previously fearful of having to go bare in certain areas of their retro arrangements.

But still, we’re told there will be retro programs with some holes in them come January, as not everyone is going to find the capacity they need at the pricing they can agree with, or even afford in some cases.

The retro market dynamics continue to be fascinating and as ever will be key in driving broader pricing across the January 1st 2020 reinsurance renewals as well.