Capacity shortfall writ large in 2022
The top stories in 2022 property-cat may have been the ones no-one ever got to write or read: the 2022 vintage reinsurers that never launched, the superstar debutantes that didn’t parade on Monte Carlo’s famous Carré d’Or, the fresh capital that never flowed. Some rumours swirled, but news seldom hit.
“Normally we would be expecting some quite positive signs in the market and a lot of press coverage about new entities starting up and capital flowing in,” the chief underwriting officer of Hiscox Re & ILS, Matthew Wilken, told Intelligent Insurer in an interview ahead of a tough round of renewal talks at Baden-Baden. “If anything, the speculation has been of the reductions and the reticence to re-engage.”
The list of capacity blockers was long: reinsurers had fallen prey to five straight years of losses with rate adequacy still elusive, secondary perils had gained the upper hand, insurance-linked securities (ILS) money stood trapped as collateral and H1 investment losses trimmed capacity.
Crucially, signs showed the retrocession market was even more blocked. And that was just pre-Hurricane Ian, and it wasn’t counting what inflation had done to the demand side of the reinsurance market equation.
“There are small pockets among reinsurers that could increase by a small margin,” Beazley’s deputy head of treaty reinsurance Mark Vaughan told Intelligent Insurer in early October as the US renewals talks kicked off at the APCIA convention in Dallas. “But it is hard to see anyone walk in and significantly increase capacity.”
So in place of the usual hopeful new forays into property reinsurance, headlines were dominated after Hurricane Ian by retreats or wound-licking by incumbents who started adjusting to speaking of six years of running losses, no longer just five.
Axis Capital delivered arguably the biggest dose of shock and awe with its retreat. Axis capped off a period of heady nat cat reductions, including a 25 percent cut in the property-cat book at 1/1, 2022, with a mid-year announcement it would abandon property-cat reinsurance altogether. By the time July renewals had gone by, probable maximum losses (PMLs) were down about 65 percent on average across the curve at Axis, versus 2019.
Axis is paying a price, but still working to manage a smile. “Yes, there is a risk that we would lose some business,” CEO Albert Benchimol said in late October. “Some cases may arise where cedants have to take some specialty or liability business away from Axis to facilitate a troublesome cat placement with a rival reinsurer.”
