Beyond well-modelled catastrophic peril pricing

Well-modelled tail-end cat perils like North American Hurricanes, European Winter storm and Earthquakes in Japan or North America continue to see increased capacity supply, but cedant demand for reinsurance solutions goes well beyond those perils, says Andy Hottinger, CUO International at MS Reinsurance.

Key points:
Tail-end cat capacity still rising
Insurers’ reinsurance needs diversify
MS Re pursues broad multiline ties

“In many international markets, insurers not only have tier 1 cat protection needs, but many others, too: less well-modelled property cat perils such as flood, hail, wildfire, and fire and business interruption risks – not forgetting many motor and liability risks.”

He stressed that “the market will need to find the demand/supply equilibrium in a much more granular way rather than just assuming that the supply-demand balance is uniform.”

Capital influx shifts balance

Since the last Monte Carlo, reinsurers have enjoyed four quarters of strong earnings, largely thanks to low tier 1 cat losses. That performance has attracted more capital, including a renewed surge from the ILS sector.

“Besides ILS, many reinsurers are leveraging their balance sheets by using third-party capital on the modelled tier 1 risks, leading to increased supply on the traditional side of the market, too,” Hottinger explained.

“The market will need to find the demand/supply equilibrium in a much more granular way”

Casualty and motor: mixed dynamics

Beyond property, international casualty and motor remain critical to the reinsurance equation, but with varied dynamics across jurisdictions.

“The need for reinsurance in motor, particularly for motor bodily injury, remains high in many European markets,” Hottinger said. MS Re, he noted, relies on localised underwriters who understand specific client needs, often as part of broader multi-line partnerships.

Casualty tells a different story. “In the large risk space of international casualty, we are closely following developments on the original markets, both in terms of economic conditions and developments of exposures,” he noted.

“Besides the large risk segment, there are numerous more localised exposures where insurers need solutions. MS Reinsurance, with its market-specific focus, is very well positioned to be a go-to partner for those cases.”

1/1 renewals: Pricing and beyond

While Monte Carlo is a prime event to speculate where the market will head, the focus of the conference remains on the main perils. While it is true that for those perils the renewal outcome will be significantly driven by the global reinsurance and third-party capital supply versus demand, the reality in International P&C is much more multifaceted.

For all each of those segments the market will ultimately decide the clearing price.

“We don‘t try to read the tea leaves instead we work closely together with our clients to increase our level of support and to find additional ways - based on a good client understanding - to deepen and expand our mutual business relationships,” he said.

It is about building resilience through long-term client partnerships.

“We prefer to work on a broad-based, longer-term partnership with our clients and manage the cycle together,” Hottinger said. “However, we also understand that some clients prefer to work transactionally, and we are happy to work with those buyers as well. The client decides how they want to transact.”

What matters, he argued, is relevance, not just capacity. “We’re seeing clients who are increasingly looking to reinsurers who can help them build their business,” he said. “To do this, reinsurers must really understand their clients’ needs and help them to achieve their business goals. This type of value-added dialogue goes way beyond simply providing capital capacity.”

Questioned about MS Re’s views on volatility, he added that managing volatility is at the core of the reinsurance business. “There has always been uncertainty in the world, and the reinsurance industry exists to smooth it out. Our clients are attracted to our strategy of working with them on a long-term and sustainable basis.”

“At MS Reinsurance, we are very well capitalised, and this strong capital backing allows us to take a long-term approach,” he concluded.

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