Lockton Re’s Bisset: Retro capacity to rise as clients seek frequency covers

Retro capacity is set to expand at 1.1 but any increases are unlikely to be sufficient to push retentions down, according to Lockton Re’s Bob Bisset.

However, Bisset believes incoming capacity should be enough to drive a return of split retentions for some lesser perils, with the potential for more frequency covers to be placed.

“We placed a number of them post 1.1 last year,” he told The Insurer TV. “We're expecting that clients will be looking to buy frequency covers outside their core placements.”

The Lockton Re chairman for global retrocession and property specialty, Bermuda and market capital said he expects to see “a little bit of a relaxation” in terms of retro coverage at 1.1.

“I think the market will be open to discussing increased perils and geographies that were a little bit more difficult to engage reinsurers a year ago,” he said.

With additional supply coming in and demand staying relatively static, Bisset said there will also be pressure on pricing.

“The discussion we'll be having as a broker with a client – with the eye on which markets support them – is where are their needs best served? Is it expanding coverage? Is it moving retentions? Or is it discussing price?”

He added that the timeline for the upcoming renewals was likely to be similar to last year.

“There are clients that really, it's important to them to get their programs done early. So they're out in the market now, trying to sort out terms and conditions.

“They like that certainty, so they want to get it done before, say Baden-Baden and APCIA really kick in, so before the end of October.

“There's a number of other clients that will have their information out early, but it'll be more of an elongated negotiation and discussion, and there'll be some that wait till the end. So it's going to be a bit of a smorgasbord of the timeline and how clients want to play that.”

Bisset said Lockton Re’s belief is that it is down to the client to decide.

“If they want to buy early, and they get that certainty, lock it in and go for it, right?

“Sometimes there is a situation where there's excess capacity at the end of December, and prices fall off a little bit. If you want to play that game, and you're able to play that game because you're not as dependent on retro then, we'll support you on that front. But our advice is get your information early, get it in the market and allow yourself optionality.”

New capital

While earlier forecasts of a highly active hurricane season had caused some capital to pause, Bisset said there had been a steady flow coming into the market this year, particularly through sidecars.

“Some may be interested in retro specifically, but also sidecars more broadly,” he said. “And if you talk to our friends in the ILS world, the collateralised reinsurers, they're having very interesting and robust conversations about capital coming into them.

“So, absent a loss from the US hurricane season, we think it's going to be a net positive event on the capital side for reinsurance.”

Lockton Re has notably been expanding its capital capabilities in the last two years.

“We have been investing not only in capital markets, but also capital advisory,” Bisset explained. “We started with capital markets about two years ago, hired a great guy, Zach Breslin, and really the thought is there needs to be an advisory element.

“Clients are demanding that, and as a broker with the ambitions and aspirations that we have, they want us to be able to opine on what's going on, not only in traditional reinsurance, but also in the capital market space and third-party capital, on cat bonds, surplus shares, sidecars, all of the different products that they can have and use in their capital stack.”

Bisset described this aspect as a “force multiplier” for the group.

“What I mean by force multiplier is that not only are we able to bring these different ideas and smart ideas to clients, it actually makes us a better firm internally and a smarter firm internally, because we can access different pools of capital, but also creates a nice challenge internally,” he added.

Watch the 12-minute interview with Lockton Re’s Bob Bisset to hear more on: