European cat: not actually a common market, says Brit

European property-cat reinsurers should start treating Europe as one common market when writing cat business. A piecemeal nation-by-nation approach, often hindered by overly intense local loyalties, may be a recipe for underpricing. 

So says Simon Bird, group executive underwriter at Brit and active underwriter for syndicate 2988. “Reinsurers need to look at Europe as a common zone and price accordingly,” Bird told Baden-Baden Today. 

European reinsurance groups are often segmented nationally, a department per nation. “There hasn’t been enough cohesion when it comes to selling European cat. I think that is changing now,” he said.

The effect is visible in the prices and terms and conditions, he argues. “Europe hasn’t had anything like the reset that the US market had,” Bird said of the 2022/23 property reinsurance reset that gave a hike not only to rate, but to the retentions that have put reinsurers above the fray of many rising frequency losses. 

“A German insurer buys a programme, Italy has an event and the Germans say they won’t pay for it. An Italian is buying a programme, France has an event and the Italians refuse to pay for it,” Bird said. “Europe is broken into micro pieces and you don’t have a resolute approach from reinsurers.”

“You get much more discipline from the reinsurance community in the US.”

Compare that scenario to how events play out in the US where reinsurers typically have a much more holistic approach. A major hurricane event in Florida will impact pricing and sentiment on California earthquake reinsurance risk. Losses from midwestern severe convective storms or wildfire could just as easily trigger a similar chain reaction.

“If you are a nationwide buyer in the US, you’re buying your reinsurance from inside the same community,” the Brit executive said, to explain how a common market works.

Part of the issue, he notes, is simply size. “The cat programme from the average European insurer is way smaller than one in the US,” Bird said. “You get much more discipline from the reinsurance community in the US than here.”

The average event size is also notably smaller. Flooding from weather system Bernd in 2021 may top the rankings from recent years at $13 billion, followed by French and Italian hail events in the mid-single digit billions, then storms Ciaran and Boris in the low-single digit billions. 

Bird suggests Bernd ending up hitting top layers paying 1 to 2 percent rate online. Italian hail hit layers meriting a mid-year repricing from reinsurers. “A lot of European cat may be very underpriced,” Bird concluded.

“Sure, the events are all smaller than the US ones, but the attachment points are much lower too,” he noted. The reinsurer attempts to keep up with inflation by increasing insured asset values and increased exposures in Europe on a piecemeal approach.

Some more of the difference might be baked into the loyalties of Europe’s hometown approach.

“There has been a tendency in the past for reinsurers to be too mindful of their relationship with their insurer,” Bird said. A lot of European reinsurance has been traded directly over decades, versus the greater broker reliance in the US. “Some long-standing relationships may be just too cosy.”

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