The property catastrophe reinsurance market is “in a very attractive phase” and, for RenaissanceRe, reinsurance as a whole is currently seen as more attractive right now, with its CEO Kevin O’Donnell saying he expects this to be the case for the foreseeable future.
Speaking just now during the RenaissanceRe (RenRe) first-quarter 2023 earnings call, the firm’s CEO O’Donnell said that while supply-demand dynamics remain the way they are, he doesn’t expect anything to change dramatically in the market.
O’Donnell expects the global macroeconomic environment will continue to be “a strong tailwind” to RenRe’s performance.
“The reinsurance industry now enjoys several advantages, including reinsurance supply being constrained due to a diminished appetite for volatility.
“This has been true for third-party capital for several years. It is also increasingly true for equity investors.
“As a result, we have yet to see a significant influx of traditional capital into reinsurance markets,” O’Donnell explained.
But the CEO said that at the same time demand is still increasing, meaning the imbalance remains in effect in reinsurance and continues to drive higher rates and pricing.
He continued to say, “Insurance companies are seeking strategies to reduce their volatility, in order to stabilise their returns. Persistent inflation is also amplifying their losses.
“At it’s most fundamental, reinsurance is an efficient form of capital for insurance risk-taking, frequently the most efficient.
“Consequently, as the supply of risk capital diminishes, the competitive advantage of reinsurance increases.”
O’Donnell added that, “This supply demand imbalance, as well as concerns over climate change and elevated cat losses have resulted in a step-change in property reinsurance risks. We do not see these underlying dynamics reverting and consequently believe this step change will be reasonably persistent.”
Terms and conditions continue to be a tool that reinsurers can use, O’Donnell said, explained, “Reinsurers can use terms and conditions to manage the market cycle in ways insurers cannot.”
“As reinsurers we can offset underlying price reductions with lower ceding commissions. This helps to keep reinsurance of these lines attractive, relative to their underlying products.
“These advantages are significant and taken together make reinsurance relatively more attractive than insurance for the foreseeable future,” RenRe’s CEO said.
In particular, O’Donnell said that, “Property cat is in a very attractive phase,” saying that the positive outcome RenRe saw at the April renewals is expected to continue at June 1st.
He said the company is now making more room for some higher-returning property catastrophe reinsurance business, explaining that, “We did it because, right now we are getting paid more per-unit of risk in our property cat business and that is where we are choosing to deploy our capital.”
O’Donnell’s commentary once again points to continued opportunity for the RenaissanceRe third-party capital partners and ILS investors, as the manager continues to find attractive property catastrophe reinsurance opportunities and grow the side of its business that leans the most on its capital partners participation.