Broader client portfolios offer flexibility as market softens, says MS Re

Abundant capacity is not closing off growth but softer pricing is making long-term partnerships, portfolio flexibility and early client conversations increasingly important, says MS Re’s Hottinger.

Key points:
Capacity is chasing risk
Broader portfolios give room to shift
Ample opportunity to grow

“There is a lot of capacity chasing risk right now,” Andy Hottinger, CUO International P&C at MS Reinsurance, told Monte Carlo Today. “But there is also limited space for risk to find capacity that is sustainable and that tries to understand the other side.”

For MS Re, that means looking beyond individual transactions to the wider relationship with the client, giving it scope to increase exposure where it sees value and pull back where the economics no longer work.

“The market is softening, but I still believe there is ample opportunity if you have a broad, long-term approach to client relationships, where you can actually trade and where clients continue to have business we find attractive,” Hottinger said. “We continue to find good opportunities.”

For Hottinger, the opportunity comes from working closely with clients, understanding how their businesses are evolving, and identifying where MS Re can continue to support their goals.

MS Re also has room to expand its footprint. “We are not in a position where we are already everywhere, in every field, and have been established for 100 years,” he said. “There are still areas where we feel our presence is actually too small.”

Shifting exposure as markets soften

MS Re’s approach to international P&C starts with the client rather than dividing the market strictly by class of business. Looking at business client by client creates what Hottinger describes as a “sub-portfolio” rather than a series of individual deals.

“In broad client relationships, there will always be areas that are below target and others that perform exceptionally well. By taking a holistic view of the relationship, we can look across the portfolio and find the right balance, rather than evaluating every opportunity in isolation.”

“A balanced portfolio does not deliver non-correlation to market cycles, but it does smooth out the volatility if some lines are softening, giving us a better chance of being profitable in all market cycles.”

While client needs remain the priority, MS Re also looks globally at where its capital is being consumed, identifying areas where it can be “a little more accommodating” and others where additional growth opportunities are more limited.

That flexibility is becoming increasingly valuable as different parts of the market move at different speeds and it’s important to balance opportunity with underwriting discipline.

Holding the line on discipline

There is a firm limit to that flexibility.

“While portfolio construction provides flexibility, it is no substitute for underwriting each deal on its own merits,” he said. “There should always be a technical analysis and a thorough understanding of both the transaction and the client.”

“Clients may not always like the answer, but they do appreciate timeliness and clarity, even if the message is a tough one.”

“Simply staying at the surface and saying, ‘It is okay as a portfolio,’ is dangerous. The portfolio view needs to be fed by a sound understanding that comes from underwriting the individual deal and then bringing that together into an aggregated view.”

The same discipline applies to long-term client relationships. Trust can make it easier to have a frank and open exchange. “Market cycle dynamics means it is not always only black and white,” he said.

“Clients may not always like the answer, but they do appreciate timeliness and clarity, even if the message is a tough one,” said Hottinger. When expectations have been set early and relationships are built on trust, it is much easier to have open conversations about risk, pricing and capacity.

No last-minute surprises

Those conversations need to start early, particularly as competition increases.

“Going into a softening market, it is essential that we manage expectations,” Hottinger said. “We need to be upfront with clients and communicate clearly with them from an early stage, so that there are no last-minute surprises.”

“We make portfolio decisions based on risk, opportunity, and long-term value.”

While conversations change with the market cycle, he believes the underlying expectation from clients changes much less.

“I believe there is real value in having a reinsurance partner who is consistent in their messaging and who does not surprise you,” he said. 

“We are not here to avoid risk. We are here to manage it,” he concluded. “We remain disciplined and make portfolio decisions based on risk, opportunity, and long-term value.”

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