Hard market creates opportunity to rebalance portfolio: Mapfre Re

Business for Mapfre Re is a double-edge sword right now: a mix of profit-making opportunities and challenging macroeconomic conditions, according to Javier San Basilio, deputy general manager and chief underwriting officer at the reinsurer.

“It’s challenging on one hand and very exciting on the other,” he told Intelligent Insurer.

The challenges are rooted in an industry that, overall, has been underperforming for a number of years. He said that while there was “a little improvement” in performance at the end of 2021, the industry witnessed a strong deterioration in the first half of 2022.

“At Mapfre Re we’ve had an interesting year so far. We’ve seen growth in some of our key regions and businesses, with growth over budget slightly in some areas and we’ve seen conditions enhancements in many areas.”

The reinsurer has been busy monitoring the various challenges the industry is facing. “From inflation, which we’re all talking about constantly, to political instability to the ever-increasing volume of secondary peril claims.”

San Basilio said he has already seen evidence of “fairly hard” markets.

“The South East US property portfolios are under a lot of pressure, the retro market is very hard, and the aggregate product is very hard to place, so those are spots that are particularly tough,” he said.

He added that property lines in general are hardening, while regions with higher catastrophe needs and more recent cat events, such as Europe, are hardening more quickly—but it’s a general and worldwide trend.

But it isn’t just property or nat cat events that are hardening the industry, he said. Another culprit is the impact of inflation in long tail business which, San Basilio said, would also increase this market hardening trend.

“Cat capacity is going to be an issue; it’s being discussed everywhere and we’re facing a perfect storm. Cedants have seen their exposures grow, driven by inflation, and are trying to buy more capacity.

“On the other hand, reinsurance providers are not extending their capacity. There are clear pressures to move away from frequency losses and aggregate covers are certainly going to have a tough time at 1/1,” he said. “Of course not all clients have the same structures, deductible levels or buying behaviour historically.”

He stressed that Mapfre Re tries to underwrite each client on an individual basis according to its own merits and loss experience. While there are certain general principles and trends that need to be applied, individual treaty underwriting is “crucial” for the reinsurer, he explained.

“We will stick to our basic principles although we will definitely seek an increase in profitability and probably a change in some structures that have been too exposed.

But we’re definitely seeing renewed opportunity, and it’s a time to build a better balanced portfolio.

“We’ve been asking for market conditions like this for many years after, particularly in the property lines, a strong deterioration for some time. In some countries rates have been falling for 20 years.

“For the reinsurance industry this is an opportunity to get back to a desirable level of profitability,” he concluded.