Chubb buying more reinsurance as it “makes sense to feed the hungry”, says CEO Greenberg

Chubb has been buying more reinsurance this year as it sees an opportunity to “feed the hungry” in the competitive and softened market environment, CEO Evan Greenberg said today. He also made some interesting commentary on softening expanding into casualty lines and rate failing to keep up with loss costs, in his view.

Speaking during the second-quarter earnings call for the global insurance and reinsurance company Chubb’s CEO acknowledged that ceded premiums have risen, as the company utilises more reinsurance at a time when it makes sense to do so.

During the call, the CEO also acknowledged the softening P&C market conditions, which he said have spread well-beyond just property risks, highlighting casualty lines as an area where discipline may have waned.

Towards the beginning of the earnings call, Evan Greenberg commented on the softening market, “Soft market conditions have begun to spread beyond property to more casualty lines, particularly E&S. So those certain classes of large account and middle-market are growing more competitive.

“Pricing in certain area in numerous areas of casualty are failing to keep pace with loss costs, which are hardly benign. Keep in mind, U.S. casualty loss costs are rising at a pretty steady 6% to 7% for primary casualty, and 9.5% to 12% for excess. That’s per year, and it varies by class of business as to whether it’s rising six or seven or nine and a half or twelve. Pricing becomes marginal or inadequate pretty quickly when you’re running those kinds of loss costs.”

Greenberg’s comments, while not directed at third-party capital providers per se, are perhaps instructive for those seeking to invest in casualty lines business via insurance-linked securities structures such as sidecars. The quality of the underlying business ceded within those arrangements and the adequacy of the pricing applied to it, remains critical.

On property pricing, one notable comment from the Chubb CEO was related to the business his company has chosen not to underwrite this year.

Commenting on pricing in the last quarter Greenberg said, “Property pricing was down about 6, with rates down 10.5 and exposure up 5.2.

“But going a step further, property pricing was down 12% in shared and layered, major and specialty, for the business we wrote. Market pricing for the business we gave up or passed on was down around 40%.”

Later in the call, Greenberg again spoke about softness in the insurance and reinsurance market and further called out casualty as an area for potential concern.

“It’s across casualty. My comment about casualty stands, that numerous areas, not all, but most areas of casualty, rate is at this moment not keeping pace with loss costs. And this notion that somehow loss costs are becoming more benign, I’m not sure where that that notion comes from, but it seems to me to just be talk.

“There is zero evidence across the industry that loss costs have abated. They’re continuing to inflate at a steady rate, and I think there’s an issue that in the minds of, maybe in the investing community, that somehow steady means improving. They’re not accelerating, they’re increasing at a steady rate. Don’t confuse the two.”

Again, Greenberg’s comments while not explicitly directed at capital growth in the casualty sector, by mentioning the investing community may suggest he feels capital is dampening casualty rates to the degree that loss costs may struggle to be covered, in some cases. So worth highlighting this again.

Finally, on the subject of Chubb buying more reinsurance. Here Greenberg noted the appetite for risk seen across the reinsurance market is something his company can capitalise on at this time.

Asked why North America commercial ceded premiums appear to be up around 20% year-on-year, Greenberg said it varies by line of business.

But, he explained, “In certain areas, we are purposefully reinsuring a bit more. You could imagine that in property. You could imagine that in certain areas of fin lines, as we’ve said before, and of course we are.

“If there’s a hungry market, at times it rationally makes sense to us to feed the hungry.”