The Best Insurers Will Always Attract the Best Support

Rob Saville – As reinsurers, our biggest opportunities are already within our grasp. We have an existing portfolio of business with clients we already know, placed through brokers we already work with. Our best path to grow is with existing partners, in the world’s fastest growing region, with opportunities from trade credit to construction. Our long-established Asia Pacific branch network means local teams help support our clients to secure these opportunities.

Another opportunity lies in the protection gap. Since 2008 the global re/insurance industry has paid $1.3T of insured losses. Over the same period there were $3.5T of economic losses. That’s $2.2T of losses we didn’t protect, didn’t collect premiums on and communities and businesses we didn’t help back on their feet.

Lisa Moser – It is hard to generalize. Every country is different and markets are developing at different speeds. Casualty lines are influenced by new regulatory requirements, government initiatives and increased litigation, all of which create new demand. Some markets are already well served by products such as Directors and Officers and Professional Liability, others are developing rapidly. 

RS – China is an example. As the government promotes the ‘low altitude’ economy, this brings exciting innovations, and significant potential liability. 

LM – Our regional multiline underwriters monitor local regulatory and legislative developments, while our global professional liability product group is focused on sharing our best practices and lessons learned in other markets such as the U.S.

RS – We spend a lot of time ensuring our teams work closely together, offering advice and responses to local client and broker enquiries.

LM – Cyber is an area to watch. The exposure is borderless, but many insurers are looking to build their regional books, to diversify from U.S. exposures with new, regional buyers. We are monitoring rates and aggregate management closely.

RS – We live and work in a region regularly affected by various natural perils – volcanoes, earthquakes, typhoons, tsunamis, wildfires and the like. We manage portfolio exposures through tight attention to detail on each treaty/facultative placement, combined with portfolio-level monitoring of accumulations and aggregate exposure. We deploy significant cat capacity in Asia Pacific,  on a client-by-client basis. We seek partners who provide detailed data sets and buy well-structured programs at prices that reflect the key elements of risk management – exposure, retention, terms.

LM – Over decades, we have paid billions in claims to regional insurers. We monitor global insured losses, and it is clear we are in a cycle of elevated cat activity. As a result, reinsurance retentions have risen and insurance pricing and terms have improved to pay for those higher retentions. The trend is most visible in the U.S. due to significant cat activity, but it is being felt elsewhere too. We have moved capacity away from first layers and aggregate programs because we do not believe rates adequately reflect the risks of ‘secondary’ and under/non-modeled perils. Thai losses in March, from an earthquake several hundred miles away, were not contemplated by the cat models or underwriting – we learn from every event. 

RS – Our Berkshire Hathaway balance sheet means clients know we will be here to pay claims and trade forward after the biggest events. We add more value in the tail, less by trading dollars on first layers.

RS – We see inflation of expectations all around us, from the latest smartphone to Amazon delivery times. Insurers are led and run by people who use those services. We believe our best service, in addition to our rock-solid security, is the advice we offer – the terms and conditions on which we deliver our capacity.

RS – We diversify our book by client, by product and by region. We retain the business 100% net. This concentrates our teams on writing the best possible business on the most sustainable terms. We spend a lot of time on cycle management. 

LM – To manage volatility, we align financial, portfolio and underwriting perspectives in a three dimensional puzzle, like a Rubik’s cube of risk. Our focus on ‘event’ volatility lends itself more readily to shorter tail lines, but we also monitor potential casualty occurrence aggregations, especially for shared and layered business such as Fortune Global 500 corporate exposures.

LM – We are running an interesting beta project on our casualty portfolio. Can we combine the qualitative experience and expertise of our underwriters, actuaries and claims personnel with the quantitative capabilities of our Applied Data team? Are there any markers among the thousands of data points that predict how each treaty will over/under-performed against our overall portfolio? How can we leverage any correlations going forward? Once we complete beta testing, we plan to share our work with key clients and hopefully partner with them to further refine the insights.

RS – Both! Liability protection enables and underpins commercial development – from a new biopharma drug to a delivery truck on a busy street. The more that people and businesses are financially protected against emergencies and accidents, the more they are enabled to take the risks needed to advance. All this requires regulatory oversight, and every territory has its own priorities. We are used to operating in such environments – the EU and the U.S. have multiple regulators, because buyer confidence in our promise to pay is the essential bedrock of our industry.

RS – We have always had strong technical underwriting capabilities in the region with locally empowered underwriters. More recently we have layered in a client-centric approach that emphasizes the sharing of information and partner-based collaboration, which has been well received.

LM – In the past ten years, the market has been through a very soft phase, pandemic driven court closures, rising ‘nuclear’ verdicts and high claims inflation, the emergence of third party litigation funders and, most recently, significant year-on-year rate rises that attempt to keep pace with trend. 

A few lessons stand out:

#1: Manage the cycle. To spot when you are in a soft market, you need data, process and a culture that supports your analysis. Many companies have data and processes. Fewer have a culture that supports an underwriter cutting exposures through risk selection, line size reductions and non-renewals. You can’t mix messages by telling the same underwriter to ‘hit your numbers’. In soft markets, reduce your exposure.

#2: Keep your reserving team connected. Underwriters, claims personnel and pricing actuaries live the market every day, and know when things are turning south. Keep your reserving team in the same information stream, to allow them to adjust initial picks to current reality.

#3: Work your portfolio. Risk selection matters. Attachment points matter. Exposed Limits matter. Terms matter. If you write a meaningful book of U.S. Casualty and you don’t have a team constantly analyzing the portfolio, you are setting yourself up for adverse selection, because you won’t know what your competitors do know. You cannot manage a cycle without data.

#4: “Excess on excess” is a recipe for “excessive” losses. While international excess casualty markets have profitably written reinsurance on an excess of loss basis, most U.S. business is written proportionally, and supporting books of excess casualty on an excess basis has been a recipe for losses. The information lag on claims reporting is significant, the leverage effect on loss trend is even more significant, and the pricing does not adequate address either issue.

RS – Wherever the overall market settles, we will have supported the clients we believe have the best chance of succeeding in today and tomorrow’s market. We avoid a one-size-fits-all approach, instead differentiating based on the quality of the insurer and their portfolio. This is a stock-picker’s market, not an index play. We will continue to partner with partners and trade with traders. 

LM – These are challenging times for property and casualty underwriters. Peak zone exposures and the pricing of ‘secondary’ perils leaves some insureds struggling to buy protection. At the same time, casualty insurers are facing increased claims and claim costs as societies become more litigious. I do not see “fat” or “excess” margins in our industry. Instead, I see overall pricing that leaves little room for the unexpected, and it is the unexpected that changes the market.