Acrisure Re’s Hedley warns reinsurers will not return to frequency covers amid demand for structured solutions

Traditional reinsurers will not resume coverage of mid-sized frequency losses following the shift in attachment points at the start of last year, Acrisure Re CEO Simon Hedley has warned.

In an interview with The Insurer TV, Hedley said he did not envisage demand for frequency losses such as severe convective storms “being met in any significant way at this point by the traditional reinsurers”.

Insured losses from more frequent lower-severity weather events, particularly severe convective storms (SCS), have been on the rise in the US in recent years, with six of the 10 costliest nat cat insured loss events in 2023 resulting from US SCS events.

As reinsurers increasingly exit the market, mounting losses are being retained by carriers, pushing some into insolvency. This has led to carriers having to look to alternative forms of reinsurance to cover frequent lower-severity weather events, a trend which Hedley expects to continue:

“We're involved in finding solutions for large, sophisticated carriers with structured markets and alternative capital providers, typically on longer-term relationship transactions.

“I think more carriers are looking at those alternative solutions right now. So we'll see where that goes over the next – well, certainly at 1.1 and beyond.”

While traditional reinsurers are not expected to relax their stance on attachment points anytime soon, Hedley said they will likely return to frequency events once they have found a way to comfortably price the risk.

“If we can get more comfortable around pricing and exposure analysis, I think you will see some more creative structures coming back at some point,” Hedley explained.

MGAs with skin in the game most attractive

Hedley also noted that MGAs are moving into a new phase of their evolution, from capital-light structures to pseudo-carriers with their own risk bearing entities.

“We are probably going into a new phase of the MGA market,” he said.

“We've got some great business models out there in terms of those MGA which have their own risk-bearing entities, and that is participating alongside program capacity provided by third-party carriers,” he said.

Hedley saw proof of the popularity of the skin-in-the-game approach, in the type of MGAs that the market is choosing to scale with.

“I think those models are compelling, and you can see that in the ones who are scaling with that particular approach,” concluded Hedley.

Watch the full interview to hear more about: