Reinsurers to target further growth as favourable conditions continue

Chris Jarvis, chief underwriting officer at IGI, provides an overview of market conditions as this year’s Rendez-Vous begins.

It’s a very different landscape since the industry last met in Monte Carlo. How are people approaching the Rendez-Vous this year?

Last year the reinsurance market underwent a material correction which led to a return to profitability for the industry. As a result, AM Best has given the reinsurance sector a positive market outlook, following excellent results not seen for many years.

Though it is anticipated that the current hard market will continue, market participants at Monte Carlo this year will undoubtedly be debating whether the reinsurance industry has gone far enough to mend fences with equity investors. The past 18 months of performance may not be enough to make up for several years of losses, therefore reinsurers will be discussing how they can access more business and continue to deliver meaningful growth while these conditions remain.

There is a great deal of appetite for reinsurance business as companies aim to maintain double-digit growth, and this could include diversifying into other lines, such as cyber. If there isn't a significant US cat event or sequence of cat events, and with rates deemed to be adequate, appetite for business will surely continue to increase, creating even more competitive pressures.

What are your expectations for supply/demand dynamics at 1.1?

While sensible hard market conditions persist, the reinsurance sector will be intensely focused in the next several weeks on the Atlantic wind season given the forecasts for above-average activity. The market feels well-positioned after adjustments from the previous year; nonetheless, a significant industry event, or a series of events, may well change the current landscape and have rate implications for 2025 and beyond.

In the absence of any significant event, the demand for business will likely increase compared to last year. Conversely, the perceived adequacy of pricing means companies will likely want to buy less reinsurance and/or retain the risk themselves.

From a macroeconomic point of view, inflation has been more stable this year and interest rates are starting to fall in some geographies. This should ensure more stable investment returns and maintain capital surpluses available to support continued growth in the industry.

As previously noted, unless there is above-average cat activity, it is likely we will see rates in the reinsurance market coming under pressure at 1.1 due to the increased demand, as insurers look to write more business after decent half-year results.

Will rate hardening continue into 2025?

I think this will be unlikely – but that said, trading conditions/rate adequacy remain very healthy. We had positive net rate improvement in our own portfolio overall in the first half, but all things being equal and barring any meaningful losses, we anticipate that the rate movement will be flattish by year end. It is worth noting that the composite effect of rate changes over the last three years has created a level of adequacy which is underpinning the positive results we are seeing now across the industry.

A few insurance lines, such as marine liability, which will likely be impacted by the Baltimore bridge loss, continue to see improved rates. Overall, rates are declining in several insurance classes, and the demand for more business in the reinsurance market will inevitably lead to rates softening in that area.

What factors will impact reinsurance buyers in the year ahead?

The way and extent to which cedants buy will be largely determined by capital management actions. There may well be less demand for reinsurance (creating increased pressure on pricing) as companies seek to retain more risk because of the perceived returns available and the fact that they have more than enough capital to support their underwriting.

Businesses that are currently profitable are debating whether to return capital or utilise it in other ways. Retaining more risk and buying less reinsurance is one such option.

How will the reinsurers stay profitable, how will they put capital to work and where are the opportunities?

The key to profitability is maintaining discipline around terms and conditions and especially retentions. Generally, reinsurance programs have a much better structure now, including better clarity within wordings, and they will only get more affordable as participants compete for more business following this recent correction in the market.

More of the secondary peril losses (such as severe convective storm events) are now being retained by insurers rather than being transferred to the reinsurance market as they were in previous years.

For the reinsurance market, the cyber sector continues to present perhaps the greatest opportunity for genuine “new” business, given the continued material growth in the direct cyber market.

What is IGI’s appetite in the reinsurance space going into the end of the year and maybe into the beginning of next year?

IGI has always had a relatively small book of reinsurance, but during the last two years it has increased to about 10 percent of our revenue. This remains modest, as no doubt many of our peers will receive more than 30 percent of their revenue from reinsurance.

We intend to continue the expansion of our reinsurance book in a disciplined and selective manner, provided that the market conditions prevail, and we can identify the opportunities that meet our profitability thresholds.

We have outperformed our peers over the last few years on the majority of key financial metrics, and our results demonstrate our ability to work with clients and partners to deliver strong returns for our shareholders.