Jay Fishman, Chairman and CEO of U.S. primary insurer The Travelers Companies, Inc., said in the firms Q2 earnings call this week that the abundance of reinsurance capital, from ILS and third-party sources, is having little effect on Travelers so far.
Fishman was asked whether the reinsurance rate declines were affecting the Travelers business and how the competitive nature of reinsurance might impact Travelers in the future.
Fishman said that as Travelers is not really writing large account business it feels partly insulated from the influence of capital in the reinsurance market. While alternative reinsurance capital has begun to influence and in some cases even seek returns from large risk insurance business, Travelers does not feel impacted as its business model focuses more on the small to mid-sized market.
Travelers does underwrite large account business, but it’s typically thought of as independent of the reinsurance decisions the firm makes so not affected by the current reinsurance market trends for the firm.
Fishman said that the layered large account property business is where price sensitivity, as a knock on effect of the reinsurance market, is most felt, making it more challenging than it had been before. Fishman said that some of the new capital is now impacting that space, whether by way of reinsurance or excess and surplus, is now bumping up against that layered large property business. That’s probably where the impact is most significant for Travelers, Fishman explained.
Some attractive savings can be made in Travelers reinsurance treaties, Fishman said, but these savings don’t move the needle much for the firm. Fishman said that he often gets asked whether Travelers could take this as an opportunity, to buy more reinsurance to offset writing more primary business, to use the current reinsurance market conditions in order to expand.
He said that the answer for Travelers is now, that the firm worries a lot about the mismatch of business and in relying on reinsurance for strategic growth rather than purely as a risk balancing solution. Part of the reason for that is that the new reinsurance capital has still not been tested, Fishman said; “We’re not quite sure if that reinsurance capacity really sticks, is it permanent, is it really there for the long haul? It’s just not clear to us yet.”
So for Travelers the impact from alternative reinsurance capacity and ILS is not yet significant, Fishman said, and it is really restricted to the layered large property business it writes. It will be interesting to see whether the impact remains negligible over the coming quarters.