Beazley seeks 10% rate hikes across the board

Specialist Lloyd’s re/insurer Beazley will be seeking 10 percent rate increases across the board in this renewals season as it looks to offset higher retrocessional costs while re-pricing perils responsible for larger than expected losses in recent years. It also expects to shed 10 percent of its business.

That is according to Patrick Hartigan, head of reinsurance at Beazley, who told Monte Carlo Today that he disagrees with the notion that rate hikes should be based on the loss experience of a particular region or even particular carriers. This is the opposite of the whole ethos of reinsurance, which is that the losses of the few are ultimately covered by the payments of the many, he said.

“What has been frustrating in the past few years has been this stratification of the market whereby rates are increasingly adjusted only in the territories and regions where the losses have occurred, while everyone else is subject to flat renewals or even small decreases,” he said.

“That goes against the principle of the losses of the few being paid for by the premiums of the many, and the benefits of a global industry and carriers having globally diversified books of business.

“There is always a technical price for a risk and a commercial price for a risk the latter is influenced by many external factors. This is the fundamental principle of the industry and of supply and demand.

“If you base rate adjustments on specific regions only, we all move to a much more volatile business model where pricing is suddenly moving not by 10 or 20 percent across the board but more like 70 percent in specific places.

“A global, interconnected market is meant to smooth the peaks and reduce volatility. If the opposite were to occur, no-one would benefit,” he explained.

With this in mind, Hartigan feels that rates are and should be hardening across the board. He believes that many alternative capacity providers, so important to the retrocessional market, are now demanding a higher risk:reward ratio after the losses of 2017 and 2018. This is having a knock-on effect on all companies ultimately reliant on the retro market to offset their own risks.

On top of this, a number of the losses came from unexpected sources, such as wildfires. In view of this, he believes, many carriers are upgrading certain risks from secondary perils to primary perils and are demanding a better rate to reflect the increased risk.
“All this points to a hardening market,” he said.

That said, he believes that insurers that are well run, profitable and with a good loss experience should get a better deal from their reinsurers than those that are not.
“There is a line in the sand,” he said. “If the factors driving higher rates are macro, then you still need to accept increases will be needed.

“There is also the fact that catastrophes are showing a greater severity than in the past. The rates need to reflect this as well.”

Hartigan sets a hard line on walking away from business not right for Beazley. He estimates that in any renewals, Beazley may not renew 10 percent of business, either because rates are inadequate or because the insurer in question does not have an adequate handle on its loss exposures and claims management.

“We like to have an alignment of interests with clients; where this is not possible, we are willing to walk away. It is partly an issue of credibility.

“We plan for long-term relationships where any volatility is ironed out, but if a client does business in a way that we feel is detrimental to the relationship we will move away,” he concluded.