Property catastrophe coverage is one of the most important purchases made by many reinsurance buyers. For most, it is particularly painful that rates have tightened this year and will continue into next year. Recognizing the reality of this situation is essential if we are to provide appropriate solutions in the face of adverse market and environmental conditions.
Of course, one of the immediate causes of rate hikes is the general inflationary environment – an economic situation not seen in developed markets for at least 20 years. Catastrophic losses frequently suffer from demand inflation and this problem will be exacerbated when inflation is fueled by energy shortages and supply chain disruptions. Rising claims, climate change risks and increased secondary perils are also driving the current rate hikes.
Buyers can work with reinsurers by getting their underlying portfolio values and prices as accurate as possible and showing that they have implemented a comprehensive approach to fighting inflation. This approach gives reinsurers confidence in the exposure presented and enables the most efficient pricing. Unfortunately, those who don’t take this holistic approach will see bigger changes.
Losses continue to affect the market, leading to a general tightening of supply, with many reinsurers moving away from the lower attrition layers, reducing their overall peak area capacity or both.
Conversely, we expect the demand for increased reinsurance limits seen in mid-year renewals ($3-4 billion from domestic insurers) to continue into 2023. The combination of a Declining and rising demand indicates that prices continue to harden, come what may this windy season.
Reinsurers, such as MS Reinsurance (formerly MS Amlin AG), which are still engaged in the real estate market, will have a key role to play.
Commitment is key
MS Reinsurance focuses on developing a well-diversified portfolio of reinsurance risks. Property cat is an important part of this portfolio because it is such an important purchase for many of our clients. We focus our disaster capacity allocation on customers who can help us achieve our strategic goal of a more diversified portfolio.
The current difficult environment in the real estate cat market is the result of many factors, including the industry’s reliance on capacity that had no connection to the product beyond the appreciation of potential returns. Once the perception of those potential returns changed, that ability disappeared.
Many real estate cat reinsurance buyers have come to recognize that, for such a large purchase, commitment matters just as much as price.
Reinsurers, like MS Reinsurance, who demonstrate a commitment to providing the products their customers need, who understand why and when they provide asset management capability, and who are committed to building mutually beneficial relationships with customers will prove to be business partners whose value goes far beyond capacity. They provide.
Chris Hayward is Head of Bermuda Underwriting for MS Reinsurance (formerly MS Amlin AG)