QBE slashes aggregate cover at 1.1 to protect & build cat XoL towers
Re/insurance group QBE worked its 1.1 reinsurance renewals to protect and build up its cat excess of loss tower, while lifting retentions and slashing aggregate covers to hold down its overall reinsurance spend, officials have claimed.
“The two main pillars of our programme have remained consistent year on year,” CFO Inder Singh told analysts at his company’s Q4 earnings call. “Based on where we’ve landed with the 2023 programme, the dollar spent on our group cat and risk covers will be broadly flat year on year.”
A simplified catastrophe XoL tower now covers a heady $3.1 billion over $400 million, well above the prior year’s $2.1 billion over a matching $400 million, but with none of the four cat tops and wrap-arounds that had padded the prior year’s tower, the earnings presentation indicated.
The non-cat XoL risk tower looks similar year on year, covering $250 million over $50 million.
Combined, those changes, including the new limit, constitute “around a $200 million headwind” to the underwriting profit target versus the prior year. Singh calls those changes the “key things that go to margin.”
Holding the line on those costs came as the group lifted overall retentions both by axing the series of drop-down facilities on the XoL programmes and by hiking divisional retentions, Singh claimed. But the base $400 million attachment on the main cat tower and the 50% whole account quota share inside the tower remain in place, he bragged.
In turn, QBE largely dropped its cat aggregate programme. QBE cited a $300 million in excess of $1.1 billion and $25 million per occurrence, a long shot from the prior year’s $500 million in excess of $800 million.
“The economics of these covers have been increasingly challenged in recent years,” CFO Singh admitted. “We’ve opted to place only a small order on our aggregate cover for 2023 and we will reassess its role in our 2024 programme based on prevailing market conditions.”
The two XoL programmes defended as priority by QBE are not the bulk of the QBE costs, having accounted for some $800 million of $4.3 billion in reinsurance costs in 2022, with the rest attributable to crop, quota shares on specific lines and other, Singh noted.
Crop insurance remains a wild-card. Singh claims that “terms of the crop quota share are not changing,” but admits that stability in terms says little about final price which swings with premium, crop commodity prices, etc. Current prices and volatility factors point to “some level of modest growth in the crop business” which will “probably feed through to higher reinsurance spend.”
Terms for “most of the other quota shares” remain largely unchanged, Singh said.
In its own reinsurance operations at 1.1, QBE Re enjoyed “strong property rate increase across all segments to support growth and margin,” CEO Andrew Horton said, including rate increases on catastrophe exposed property classes of around 40% and ex-rate growth at 8% from “strong new business growth, further inflation related exposure growth and another year of strong retention.”
QBE Re used the hard market for “building a more balanced portfolio” and “leverage our cat capacity to broaden our relationships and gain access to new business across casualty and specialty lines,” CFO Singh added.
Property reinsurance was less sought out. Rate-driven premium gains were “partly offset by the non-renewal of a number of lines and our shift to higher attachment points across the book,” Singh said.
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