Renewals need plans A, B and C

Challenges in the global and Asia-Pacific reinsurance markets mean you need to have a plan A, a plan B and a plan C, as well as experienced people in your corner to advise on a hard market strategy, Stephen Warwick (pictured), head of treaty Asia-Pacific at Howden Reinsurance Brokers, told Intelligent Insurer.

With so many competing market challenges, Howden Group has identified three key areas of challenge for clients, which they call the three Cs: climate, capital and conflict, Warwick said.

For climate, he pointed to the significant loss activity across the globe, which includes major flooding in Europe and Hurricane Ian in the US. Looking at Asia-Pacific specifically, the floods in Australia were one of the largest losses the country has seen in terms of insured values, he said.

For conflict, the war in Ukraine has clearly had an impact on the reinsurance industry and world, he said, in terms of soaring energy prices. This has helped to fuel inflation concerns.

“In terms of capital, we’ve seen a decrease in dedicated reinsurance capital for the first time in many years. Our analysis points to about an 11 percent decline—and that was before Hurricane Ian,” he said.

This decline in capital is due to challenges on the asset side of balance sheets, in view of the current inflationary environment and an investment market which is down globally, and on the liability side of balance sheets from losses, he said.

On top of these challenges, Warwick said, the reinsurance market is “obviously harder” meaning you have to have a hard market strategy. “Howden has grown a lot and has attracted many experienced people, many of whom have been through a number of hard markets—including myself.

“That’s very helpful for clients because when they are facing more challenging renewals they need experienced people on their side who are able to advise them on the right strategy.”

Market experience comes into its own when times are tough, Warwick said, emphasising that as well as hard market experience, people who have been trading in the market for many years, and have good relationships with reinsurers and trusted people, are better able to navigate through difficult times.

For example, with less dedicated capital, people are concerned about their cat exposure, Warwick said. “The challenge there is how do we ensure that we get enough cover for our clients at the right price.

“The way we respond is to say ‘we are able to bring very good analytics to the table to help you understand the exposure’. Particular clients need to focus on inflation and how it is going to impact their pricing and exposure. You have to have a good story with the market around inflation.

“You need to go in the market early and have a very clear focus on what the outcome is going to be and what the client wants to achieve.

“You need to have plans A, B and C. Do not go to the market with an inflexible plan—you need a good strategy around different scenarios,” he concluded.