Rosier outlook for pricing set to continue through 1/1

As the reinsurance industry once again gathers virtually for another pandemic-disrupted Monte Carlo Rendez-Vous, disappointment at the inability to meet in person is being tempered somewhat by a rosier outlook for pricing.

The reinsurance market was hardening even before the widespread economic downturn from the pandemic, but as the industry looks forward to the 1/1 renewal season there is a distinct sense that the momentum is on the side of carriers as prices continue to climb and the sector remains attractive to capital providers.

Hiscox Re & ILS chief executive officer Kathleen Reardon has witnessed first-hand exactly how pricing is behaving after the COVID-19 pandemic.

Speaking exclusively to Intelligent Insurer’s Re/insurance Lounge, the executive expressed optimism that the upward trend would continue through to the 1/1 renewals, even given the strong growth in pricing the market has seen over the past few years.

“First of all, we’re at a great starting point, and the reinsurance industry is getting much-needed rate momentum. I do expect it to continue to 1/1,” Reardon said.

“We have had compound year-on-year rate growth. At Hiscox Re & ILS, we’ve had just shy of 40 percent cumulative rate improvement over the last four years.

“It is a much healthier market which is allowing for more open and transparent conversations with clients and brokers, which is a great place to be. It’s a great starting point.”

Rate adequacy

While there was some suggestion that price rises could begin to moderate as the economy reopened and losses from the pandemic became clearer, Reardon highlighted that losses from Hurricane Ida in the US had underscored the need for rate adequacy across the board.

“We were entering a market where there was some messaging that the rates would be moderating. Hurricane Ida has just given us another reminder of why we need to have constant heightened focus on rate adequacy, incorporating the impacts of climate change and social inflation into pricing,” she said.

“There’s a lot of uncertainty around Hurricane Ida, the loss estimate ranges are quite large. There are several challenges to deal with including power outages, potential additional flooding, as well as the impact on the cost of labour and goods.

“But it is a timely reminder of what the reinsurance community is here to offer. And I think that will at least maintain the current pricing momentum.”

ESG factors

Reardon highlighted the increasing importance of environmental, social and corporate governance (ESG) concerns to the company’s planning, both internally and with how it deals with clients.

As ESG has jumped to the forefront of the business world’s concerns over the last few years, pressure has grown for the re/insurance industry to respond more forcefully to dealing with the issue, and the executive said that the overall goals commanded strong support from Hiscox and the broader market.

“There is definitely broad support within the reinsurance community for a framework to start collecting data and to start understanding particular risks and the problem at hand.

“If we’re going to continue to retain and attract more capital to this industry, we need to have ESG front of mind, and we need to be very clear in our strategy. Hiscox Group and Hiscox Re & ILS have been at the forefront of that,” she explained.

Reardon pointed to the Group’s introduction of an ESG exclusions policy as a prime example of how the company is approaching the issue, saying that it had given added assurances to clients and partners over where the lines would be drawn.

“Our exclusion policy is driving new conversations with brokers and clients and provides a framework to allow us to make more informed underwriting decisions. We are aligned with the Lloyd’s ESG ambitions and are committed to contributing to the industry’s role in supporting the transitioning economy.” Reardon said.

“However I wouldn’t say across the board there are hard and fast rules, it’s about having a framework to ensure the right questions are being asked so we can best understand the risks and create the most appropriate solutions to support our clients.”

Kathleen Reardon is chief executive officer of Hiscox Re & ILS. She can be contacted at: kathleen.reardon@hiscox.com