Adequate rates and disciplined underwriting top wish list to Santa

A return to adequate rates and disciplined underwriting appear to top the Christmas wish lists of most re/insurance executives questioned by Intelligent Insurer as part of a year-end survey designed to reveal what they hope for in 2018.

Despite the high levels of catastrophe losses borne by the industry this year thanks to a combination of several hurricanes – Harvey, Irma and Maria (HIM) – making landfall in the US, earthquakes in Mexico and wildfires in California, some executives seem less than convinced that a hard market is inevitable.

“In my letter to Santa, I would be asking for the stalwarts of the industry to deliver on their promises, and to apply some reason in their approach to underwriting, or we will miss the opportunity to return to a more disciplined, harder market,” said Adam Safwat, vice president, underwriting & business development of IGI.

He continued: “A call for the return of disciplined underwriting is not just on my Christmas list, but on the list of many in the market. The ingredients are there to set the stage for a hard insurance market after the series of catastrophic natural disasters seen in the third quarter, combined with a poor economy.

“While there is plenty of rhetoric in the market for more sensible underwriting, the delivery is not always reliable – after all, the insurance and reinsurance markets are notorious for having a short-term memory. When push comes to shove, market pressures and factors such as management, budget and shareholder expectations can create an environment for bad pricing decisions during a negotiation process.”

Kelly Lyles, chief executive, client & country management, Insurance, XL Catlin, agreed. “It’s probably not what Eartha Kitt would wish for, but at the top of my list is rate adequacy; being paid a fair price for the risks we take, and with no one market operating in isolation,” she said.

Iain Bremner, managing director, Barbican Managing Agency, added the nuance that while rate increases are now likely in the aftermath of heavy losses, he wants to see them sustained.

“From a market perspective, one of the things near the top of my Christmas list is the hope that the rate increases spawned by the catastrophic impact of HIM, as well as other devastating events such as the California wildfires, can be sustained. We expect to see strong rate increases in loss-affected lines at 1/1, plus a general adjustment of pricing across the broader market,” Bremner said.

David Gittings, chief executive of the Lloyd’s Market Association, agreed noting that as Lloyd’s has been particularly hard hit by the Q3 storm and earthquake losses, significant rate increases are required.

“On the back of a very long run of years without major catastrophes but with serious market competition – both in London and between international re/insurance centres – we have seen rates fall by as much as 50 percent in some lines and areas of business, even as policy terms and conditions expanded,” Gittings said.

“Any rises would be welcome, but we believe significant rises will be essential to underpin the long-term financial health of the Lloyd’s market. In part that is because we have just borne the brunt of the Q3 storm and earthquake losses and paid billions in claims with great alacrity.”

Meanwhile, some executives also highlighted the bigger issue that recent losses have highlighted: the scale of the protection gap even in highly developed countries such as the US. Stephan Ruoff, the chief executive of Tokio Millennium Re, said he would like to see more initiatives to help close this – and the capital markets might be able to helps solve this problem.

“The string of major natural disasters has not only left the reinsurance industry facing one of its most expensive years on record, but also painfully revealed insurance protection gaps that should not be there,” he said.

“Capital markets participation has already started to become a source of funding to help narrow the insurance protection gaps that exist in parts of the developing world or for populations that are vulnerable, developing, under-insured or particularly prone to natural disasters.”

This is just a snapshot of what executives told us in our Christmas questionnaire. For the full comments from all 16 executives that took part in our survey, please click  here.