Despite some improvements, the reinsurance sector continues to struggle to generate a meaningful return on capital, according to Bobby Heerasing, SiriusPoint’s Head of International Strategic Business Development. As pressure mounts on the impacts of climate change and secondary peril losses, there’s a real need for further rate momentum, according to Bobby Heerasing.
Companies will be hoping for significant rate increases across multiple business lines, primarily loss-affected catastrophe lines, but also in the specialist area, such as cyber, as the January 1st, 2022 reinsurance renewals approach.
In light of this, Reinsurance News recently spoke with Heerasing of SiriusPoint, a specialty insurer, and reinsurer, about the approaching renewals season and current market dynamics.
Heerasing began by emphasizing that this is an industry that has struggled to provide meaningful returns to shareholders in recent years.
“When you look at the industry’s combined ratios, you’ll notice that many companies haven’t been on the right side of 100 in a long time and are failing to provide a substantial return on capital.” “On the heels of another difficult year – 2021 – there has been continuous pressure on the industry to remediate, restore, and improve,” Heerasing added.
Furthermore, from a modeling standpoint, the sector must cope with the very real impact of climate change and secondary risks, he concluded.
“There are also external considerations such as rating agencies looking at the potential need to strengthen capital bases to deal with the potential for increased frequency and severity, which influences the ability to deploy capacity, which in turn has an impact on pricing.”
“Across large aspects of the cat book, everything points to the need for continued hardening in 2022.” “We’ve already seen rate increases in categories such as Marine, Casualty, Cyber, and D&O, notably in Australia,” Heerasing added.
“We need to see sustained rate hikes, in my opinion, to correct some of the combined ratios we’ve seen in the last five or six years,” he added.
Increased catastrophe losses, mostly caused by storm Ida in the United States and European floods, hurt SiriusPoint’s underwriting performance in the third quarter of 2021, as they did many of its peers.
Flooding in several regions of Europe in July, most notably in Germany, has been connected to climate change, and many in the re/insurance sector believe it is a portent of what the future holds in terms of the frequency and severity of so-called secondary dangers.
With this in mind, Heerasing examined how the increased frequency and severity of secondary hazards are affecting capacity availability at specific return dates, both in aggregate and retrocession.
“There’s already been a lot of debate about the dependability of the output provided by stochastic modeling, which is very much backward-looking models,” he noted.
“There is a growing awareness that the “past” may not be a fair predictor of what the future may hold in terms of CAT exposures.
As a result, the discussion over risk and reward is called into question, as is whether some of our long-held beliefs about volatility and return periods are still relevant or need to be revisited.
“Based on the evidence, patterns, and data that are developing in our sector, I am firmly in the camp that some introspection and evaluation is required,” Heerasing said.
“The likely answer will be the requirement for greater cash for the industry to overcome its problems,” he continues. However, if the frequency and severity of the events are also increasing, that capital will need to attract a greater rate of return to compensate for the increased risk. As a result, the risk must be effectively managed.
According to the findings of our recent Reinsurance Market survey, loss-affected risk regions are expected to see some of the most severe price increases at 1/1.
However, as Heerasing points out, just because one section of the world has had a good year while others have had more frequent and severe storms does not mean that pricing or capacity will remain unchanged.
Heerasing stated, “Our industry is significantly more active than that.” “Risk bearers will face ongoing pressure to increase profitability in 2021.
“The stresses we’ve been under over the past four years are still present and will persist. As reinsurers, we must provide a substantial return to our shareholders to ensure that money remains in the United States so that we can continue to provide solutions to our clients. Asia, Europe, and North America are all in the same boat.”