There’s a lot of hungry and extremely naive capacity available: Chubb CEO Greenberg

Competitive insurance and reinsurance market conditions are spreading beyond just property risks, as there is “a lot of hungry and extremely naive capacity available,” Chubb CEO Evan Greenberg said today.

Greenberg, speaking just now during Chubb’s third-quarter earnings call, explained that his company is being increasingly selective as it navigates a softening marketplace.

The CEO noted that during Q3 Chubb shed some business in North American commercial and E&S lines, particularly property and financial lines.

“North America commercial was down 2.7%, impacted again by large account and E&S property and financial lines, where we non-renewed certain business and purchased additional reinsurance,” Greenberg explained.

Greenberg explained that the additional reinsurance has been purchased in certain areas of financial lines and in property risks.

“We took advantage of opportunities to place additional reinsurance, which also gives us the opportunity to maintain presence and provide service and coverage to customers, and at the same time spread risk, and it was in those two areas,” Greenberg further explained.

After the second-quarter, Greenberg had said that Chubb has been buying more reinsurance this year as it sees an opportunity to, as he termed it, “feed the hungry” in the competitive and softened market environment.

The Chubb CEO’s comments today suggest that reinsurance buying has continued, while he continues to see a lot of “hungry” capital in the market.

Today he explained, “In terms of pricing, the market continues to grow more competitive in commercial P&C across the globe, in particular the U.S. and London.

“Beyond property, competitive market conditions are spreading to more casualty lines, where pricing in numerous areas is failing to keep pace with loss costs, which, while steady, continue to well-outpace general inflation.”

Then he added that, “There is a lot of hungry and extremely naive capacity available. Our broad diversification, including a deep local presence in so many countries and lines of business, leave us relatively-well positioned in many areas of opportunity.”

Greenberg also made some comments on the increasing entry of alternative capital into broader areas of insurance and reinsurance, including through casualty sidecars and third-party investors backing broker facilities.

Greenberg stated, “You know, what drives cycles in insurance is supply and demand, and so sidecars, broker facilities, line-follow facilities, more MGAs with capital behind them other than professional insurance, and frankly a lot with professional insurance behind it. This is all throwing out of balance the supply relative to demand, and it’s a lot of very naive capacity.

“Even even where it’s other than traditional insurance, it’s investor capital. There’s two brands of it to me. There’s one brand where they’re cleverly going to make a trade, even in casualty sidecars, and they have it arranged to pass the tail back to the carrier that’s fronting it who’s going to end up holding the trash, and they may make a turn.

“On the other hand, I think a lot of that clever capital doesn’t understand the pricing versus the loss-cost environment, and I don’t think they’re going to end up making the turn that they think they might make.

“But, we’ve been living in a world where the cost of of money is cheap, and there’s a lot of money looking for absolute return, not risk-adjusted. As you know, generally the world is beginning to change that way, but in the meantime, a lot of it has found its way, or a fraction of it has found its way into insurance as sort of an alternative investment asset class.

“It has different forms now, than we’ve seen to some degree in the past, but the themes are the same.”

Asked whether the market is shifting towards an environment where cash-flow underwriting becomes more normal, given the macro environment, Greenberg said he thinks this will be “only on the margin.”