Everest Re to continue shift away from cat volatility: Andrade
Everest Re has significantly reduced its exposure to peak cat zones in the past three years and is ploughing into casualty treaty as it looks to capitalise on surging primary rates, according to management.
On a call to discuss the carrier’s Q3 results today, CEO Juan Andrade said that the business’s work to diversify its book and reduce volatility, begun in 2017, had helped to reduce its exposure to events such as Hurricane Ida and central European flooding.
Andrade pointed out that Everest Re’s loss from the two events was $635mn against an industry loss figure of more than $40bn.
“Everest is not immune to the cat losses, but the cumulative, deliberate and purposeful actions we have taken to reduce volatility have changed our company's risk profile,” said Andrade.
He added that the carrier has focused on “reducing reliance on a single peak cat zone”, taking actions such as reducing its probable maximum losses for southeast US wind from 11% to 5.9% of equity.
“We have scaled back our total property cat excess of loss (XoL) premium, which comprises 17% of our total reinsurance premium today versus 26% at the end of 2017,” he added.
“Diversification is key because the severity and frequency of these events are a reality,” Andrade said.
“We see the impact of climate change in our data, and we take a proactive and scientific approach to how we model and underwrite for it.”
Andrade’s comments come amid growing concern in the industry about the sustainability of cat business as climate change continues to increase both the frequency and severity of extreme weather events, while static capacity acts as a brake on price increases.
In response to analyst questions about whether cat underwriting will remain profitable in future, Andrade said: “We are in the property cat business, but we're also mindful that the external market conditions have changed over time.”
He cited climate change as one element threatening the future of cat underwriting, as well as the entrance of ILS funds as a factor that has “muted the size of the rate increases that you see post events like Ida”.
“While we see [cat] as an attractive line of business, we also see better returns in other lines of business going forward,” said Andrade.
“It's part and parcel of the reason why we have been on this de-risking journey that continued to talk about essentially changing the profile of our company.”
Elsewhere on the call, Andrade said Everest Re was continuing to grow in proportional casualty treaty, where it could take advantage of increased underlying rates.
The chief executive said casualty pro-rata business had grown by 63% during the quarter.
Everest’s accompanying Q3 presentation revealed that casualty pro-rata business had increased from 11% to 21% of its reinsurance portfolio between 2016 and 2020. Over the same period, it reduced property cat XoL business from 29% to 17%.
“We're growing in our pro rata structures in casualty alongside some of the best underwriters in primary market,” said Andrade.