Whatever the impact recent catastrophe events have on reinsurance pricing at the upcoming renewals, and beyond, hopefully, the loosening of terms and conditions (T&C) witnessed in recent years can be reversed, resulting in a pure property market, says Rob Procter, Chief Executive Officer (CEO) of Securis Investment Partners.
In recent years, declining rates have combined with intense competition for insurance and reinsurance-linked business, contributing to a very challenging operating environment that’s underlined by strained underwriting and investment income.
During the challenging and softened market cycle, a lack of discipline was evident in certain areas of the market, with terms and conditions (T&C) loosening and evidence across the sector of the bundling of risks, whereby specialty risks found their way onto reinsurance or retrocession coverages.
This happens as companies fight for a seemingly shrinking market share in light of the abundance of capital, from both traditional and alternative sources, offering broader coverage and terms to secure business. Something that leaves companies at risk of experiencing larger-than-expected losses from either poorly, or unmodelled risks that aren’t fully understood but included in response to cedant demand.
A lack of underwriting discipline and the loosening, or relaxing of T&Cs is common in a soft market environment, and following the high level of catastrophe losses in the third-quarter of this year and the expected increase in rates at 1/1, the Securis CEO hopes to see a reverse of these trends.
“What’s going to happen to terms and conditions? I think a lot of the creep that’s happened in the past few years, I would hope is going to be reversed,” said Procter, speaking at the 2017 Artemis Monte Carlo Executive Roundtable.
“However large the losses are, this is a different year, and I hope it is going to wake up some of the ILS markets and other markets that are out there to just stop and reverse this creep, whereby, marine and terror, and cyber has crept into reinsurance and retro coverages.
“That’s one thing that we are utterly focused on, ensuring that it becomes essentially a pure property market again. If you want specialty risk cover, fine, but we price and give you that separately. But you shouldn’t be assuming property risk as an investor thinking you’re getting pure property risk, and then other perils are creeping in because of the slack market of the last few years,” continued Procter.
Fellow roundtable participant and CEO of Sciemus, Rick Welsh, shared a similar view, using the conflation of cyber and terrorism within the industry as an example that shows a “demonstrable lack of understanding,” which simply “adds to the underlying risk,” regardless of the abundance of capital fuelling a blurring of the lines.
The hope that recent catastrophe events, namely hurricanes Harvey, Irma, and Maria, and the two Mexico earthquakes would help to reverse some of the creep was also highlighted during the roundtable by lawyer Nick Bugler, Partner, Wilkie Farr.
“I think that a positive development coming out of the recent cat events would be to pool the general experience that you’ve all been talking about, and say, ‘How can we make things better? How can we draft our contracts better?’ So that everybody knows exactly what the situation is,” said Bugler.
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