US regional/mutual market addressing vital issues not discussed for years

In the run-up to 1/1 renewals, the US regional market has seen a pricing tailwind, and the market has addressed long-standing issues previously overlooked for years.

The US regional/mutual market has recently addressed vital terms and conditions and primary rate issues that have not been looked at for many years. 

Key points:
Rate rise approvals boost regionals
1/1 expected to be orderly; T&Cs largely intact
Regionals ramp up tech investment.

Expectations are of an orderly 1/1 renewal as the benefit of these changes finally flow into the primary market. The increasing frequency of severe convective storms is leading to increased volatility for primary carriers, with them looking to reinsurers for solutions.

“We are in a period where the market is now addressing issues such as terms and conditions, retentions and deductibles – which had not been discussed between insurers and reinsurers in recent history.”

That is the view of Joe Banker, head of regional, MS Reinsurance. Speaking to APCIA Today, he said that until a few years ago, the only discussions between US regional carriers and reinsurers had been about price. That has now changed. 

“Rates for primary insurers had been inadequate, but some years ago they got a collective tailwind and managed to persuade regulators to allow them to increase pricing. This is now changing dynamics and flowing into the market,” said Banker.

“We are in a period where the market is now addressing issues such as terms and conditions, retentions and deductibles – which had not been discussed between insurers and reinsurers for a long period of time.”

Pressing issues

When asked what is on his clients’ minds currently, Banker observed that the past few years has seen a growing awareness among regional carriers that they need significantly to increase spending in technology – not just policy administration systems – to remain competitive.

He identified consolidation among independent insurance agents as a significant trend in the regional market, which has the potential to squeeze out the remaining smaller players.

Regarding regional client concerns, severe convective storms (SCS) are one of the major headaches. SCS have become much more intense and unpredictable in the past decade, leading reinsurers to increase retention rates for primary carriers.

Other pressing client issues include stock market volatility, social inflation and the threat of cyber-attacks on their own businesses. “Regional clients are smaller in comparison to the larger multi-nationals. Their balance sheets are smaller and so market swings have a bigger impact on cash flow,” said Banker. “For US casualty specific business, ‘runaway juries’, who are pushing for significant increases in jury awards, are stretching to the full limits on policies.”

Another challenge for regional clients, in states that are very consumer-friendly, is pricing adequacy. “Rates in many cases have remained the same, despite the fact that repair costs have risen due to inflation.”

MS Re: A preferred partner for regional insurers

Banker said that MS Re was well positioned to support the US regional market because it had built up a good book of business in a relatively short period of time. Many regional insurers trade on their relationships and familiarity with their reinsurance partners. These companies value long-term relationships – a view shared by MS Re and its owner MS&AD, added Banker.

 “This holistic portfolio-wide underwriting is something that regional carriers find very attractive.”

“Our regional clients value relationships and they know our underwriters well,” he said. “They are competing against larger carriers, and they need reinsurance to be able to do this.” 

He said MS Re does not write standalone catastrophe cover but writes across clients’ entire portfolio. “This holistic, portfolio-wide underwriting is something regional carriers find very attractive,” said Banker.

He added that regional insurers value traditional reinsurers who use their own capital rather than cede the risk to other capital providers because of an implied promise of ongoing support over the market cycle.

He noted that several reinsurers have exited both the US property and regional markets in recent years and this left carriers in the lurch. Brokers are looking to diversify their reinsurance panels, which makes MS Re, rated A+ by AM Best, a compelling proposition.

Banker said he expects 1/1 renewals to be “orderly” with terms and conditions remaining the same.

In July, MS Re announced a restructuring of its underwriting operations so that underwriting teams are more directly connected with their clients, with Banker leading the US regional client team. 

He said: “These changes have meant our structures are now more closely connected with our clients’ needs, and they have been received extremely favourably in the market. We are also increasing our team, to better support our growing book of business.”

Joseph Banker is the head of US regional at MS Reinsurance. 

For more news from the American Property Casualty Insurance Association (APCIA) click here.

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