Return on capital, ESG and contract clarity will dominate renewals discussions

“It’s fair to say that much of the heavy lifting on clarity of contract was done in 2020. The industry faced head on what changes might be needed to have a full understanding of the risks,” declared John Huff, chief executive officer of the  Association of Bermuda Insurers and Reinsurers (ABIR).

Speaking to the Re/insurance Lounge, Intelligent Insurer’s digital hub for interviews, debates and panel discussions, Huff explained that clarity of contract is an increasingly important issue, particularly after the COVID-19 pandemic.

“It’s important on the front end of business for pricing and capitalisation. It also creates more business opportunities, ensuring that any coverage that is underwritten is properly priced.

“It’s equally important on the back end for reserving and claim adjudication, as well as the potential risk of any friction and frustration you might have in the customer experience,” he added.

Emerging expectations

Huff expects emerging environmental, social and corporate governance (ESG) expectations from stakeholders and regulators to be a talking point in forthcoming discussions.

“It’s an area that Bermuda will excel in because of the logical extension from its leadership and natural catastrophe cover for over three decades. It’s an exciting time to be in the space,” he said. Huff went on to reveal that ABIR’s climate committee is probably the association’s most active body and is currently working with regulators and policymakers.

“ESG and climate change are factors that are being driven daily in the repositioning of portfolios, pricing, and terms and conditions. Our industry has such an important role in adaptation, mitigation and risk transfer from the increased severity and frequency of climate-driven events, that it’s important we remain engaged and do what we can.”

Turning to climate change, Huff said that it has been a significant catastrophe year, citing the European flood issues, winter storm Uri and, more recently, Hurricane Ida.

“By all accounts, it will be a slow and long recovery. We’re looking at how these elongated events impact the cost of the overall event,” he added. “It’s time to face the costs issue when we are starting renewal discussions.”

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Lingering uncertainty

The primary concern amid renewal discussions will be the return on capital and rate adequacy. “Both will be viewed from a perspective of inflationary signs in the environment and a lingering uncertainty in the economic environment that is playing out globally. We’re starting from a much-improved point for rate adequacy, particularly with compounded year-over-year rate adequacy changes,” said Huff.

He explained that it is too simplistic to believe that new capacity in the market might dampen any rate increases. “That investment has gone to legacy firms (scale-ups) and startups. Many startups are going into specialty lines and niche companies, where talent and technology make such a difference to capturing that business.”

Over the past 18 months, Bermuda has experienced significant investment—about $19 billion of new funds.

“We’re seeing significant growth in our legacy firms that have been reenergised, thanks to new capital,” said Huff. He added that startup companies are forming on the Island for the “same historical reasons”—namely that Bermuda has always been a great place to start a new company.

On ABIR’s current work and aims for the future, Huff noted that the association is very engaged in cyber, as well as climate change. While not all ABIR’s member companies are in the cyber market, those who are feel deeply involved. He added that there is an increased focused on cyber and filling the protection gap, whether that is on the climate side or the cyber side.

“ ABIR is very active in the Insurance Development Forum—a public partnership between the insurance industry, the World Bank and the United Nations that is addressing some of these climate risks.

“As the world builds back its economies from the pandemic, what is the insurance sector’s role in ‘building back better’? If that involves an infrastructure component, there is definitely a tremendous role for the industry,” he concluded.

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