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Monte Carlo Roundtable 2019

It seems like a long time since the reinsurance market was the lanky kid in the playground, looming over its developmentally challenged peers.

The sector experienced a growth spurt as it capitalised on an ultra-hard market for catastrophe exposures in the wake of major catastrophe events like Hurricane Andrew, 9/11 and hurricanes Katrina, Rita and Wilma – launching the careers of a phalanx of new reinsurance carriers in a series of ‘Classes’ that now seem like the stuff of legend.

However, having once snatched the ball out of the air – only agreeing to give it back after its lower-layer, primary-market playmates accepted hefty rate increases for loss-affected and cat-exposed accounts – the reinsurance market seems to be caught between two classmates who have experienced their own growth spurt.

To put it less allegorically, primary rates are increasing all the time – betokening a hardening if not resolutely hard market for the underlying business – and retro rates are also up, leaving reinsurers feeling squeezed.

There have been reinsurance rate rises for sure – particularly on loss-affected business – but the sector is coming from such a low base that it has a long way to go before it can recover the stature of its youth.

That said, as the participants in The Insurance Insider’s flagship Monte Carlo Roundtable relate, insurance pricing momentum is increasing, and with the increase in retro costs acting as a “natural floor” under cat reinsurance pricing, the catalyst is there for further reinsurance price increases in future.

The problem with the market currently is that the dynamic in the risk-financing playground is a little confused. The new kid on the block – the “new normal” of Cat 3 to Cat 5 windstorms – threatens to erode already thin margins.

At the same time, while reinsurance demand is apparently at an “all-time high”, so is supply.

The question is: are we beyond the point of the “Groundhog Day market”, as Hyperion X’s David Flandro terms it? Is the current hardening market a temporary correction, following some of the largest insured catastrophe losses ever in 2017 and 2018?

With reinsurance combined ratios still hovering around or above 100 percent, the market still has to reach higher to prevent cedants snatching the ball out of its hands, bringing back another era of perma-soft rates and dwindling premium income to set against burgeoning cat losses.

And with many brokers and underwriters inexperienced in terms of selling rate increases in a hard market, articulating the value proposition of reinsurance may be harder than ever.

Hamilton Re’s Kathleen Reardon wonders whether this reinsurance squeeze means the sector is threatened with extinction.

And Axa XL CEO Greg Hendrick ponders the “inverted rating curve” – where the insurance and retro sectors could “collapse right on top of each other”.

Read on to discover how innovative new vehicles, technological change and data management could help the industry save itself.

It won’t be child’s play, but don’t worry – these kids know what they’re doing.

To view the Monte Carlo 2019 roundtable supplement, please click here.