Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Reinsurance drives growth for XL as pricing bottoms out – McGavick


In a “somewhat bottoming pricing environment” XL Group’s growth in the third-quarter of 2016 was driven by its reinsurance operations, where the firm took advantage of pockets of opportunities to offset the challenging marketplace, according to Mike McGavick and Greg Hendrick.

The third-quarter results for insurers and reinsurers continue to be released and as the softening landscape persists and catastrophe losses increase, companies have been noting persistent market headwinds and competition across the majority of business lines.

Pricing in the reinsurance space is under significant pressure from traditional and alternative sources, but executives at XL Group, during the firm’s Q3 earnings release investor call, underlined some pockets of growth in the global reinsurance marketplace, and a bottoming of the pricing environment.

The insurer and reinsurer’s net income and operating income increased in the quarter, to $70.6 million and $122.4 million, respectively. Gross premiums written (GPW) in the firm’s reinsurance segment increased by an impressive 23.2% in Q3 2016, offsetting a 2.1% GPW decline in its insurance business, reveals the firm.

Commenting on growth in the reinsurance segment Greg Hendrick, Chief Executive Officer (CEO) of Reinsurance Operations, XL Group, said; “Not everything in the reinsurance market is at a very low return level. You’ve seen cat experiences in a couple of countries around the year and in last year and you’re seeing rates respond to that. You’re seeing casualty in general starting to flatten out and really renew the same again year-over-year.

“There isn’t one big bad market out there. The general tone of it across it is not great, but there are pockets of opportunities.”

The size and reach of XL Group, both before and after the merger between XL and Catlin, enables the firm to take advantage of opportunities that may arise from existing, long-standing relationships with clients.

Generally, the reinsurance marketplace is under pressure and rates are continuing to fall, but along with opportunities for growth, which is clearly demonstrated in the firm’s Q3 results, XL Group CEO Mike McGavick, noted underwriting discipline and the possible bottoming of the pricing cycle.

“This quarter our reinsurance book was the driver of some growth in a somewhat bottoming pricing environment,” said McGavick.

“You’re seeing a clear change in attitude from the market side of the equation. And you’re seeing a lot more pushback in terms and conditions. You’re just seeing a different attitude in very public display. And I think that’s very encouraging and I would carry that further to the large commercial marketplace,” continued McGavick.

Hendrick also noted market conditions and again noted the persistent challenges in the global reinsurance sector, stating that growth in XL Group’s reinsurance segment was also offset by underwriting discipline, which saw the firm walk away from roughly $60 million of premiums owing to unacceptable terms and pricing.

“Shifting to market conditions, we found the pricing environment challenging but rate decreases continue to decelerate in most lines and regions. And as noted last quarter, we appear to be reaching a bottom in many classes of business.

“During the quarter rates across the segment were down approximately 2%. Our global catastrophe portfolio was down 4% this quarter and 5% for the year to date, significantly less than the 8% decrease we experienced in 2015,” said Hendrick.

With rates in the sector remaining pressured and expected to fall further in 2016 and into 2017, it’s promising for the reinsurance sector that pockets of opportunities do exist in certain areas, especially with the key January 1st 2017 renewals on the horizon.

Furthermore, the recent acquisition of a 15% stake in New Ocean Capital Management Limited, which was established by XL Group in 2013, by Mitsui & Co. Ltd., highlights the firm’s commitment to growing its alternative reinsurance capital utilisation, and dedication to the ILS space as a means to grow its overall business and navigate the testing landscape.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.