The recent reinsurance industry conclave at Baden-Baden provided further examples of an industry which remains unsure whether its glass of Riesling is half full, or half-empty; and whether it should be studying existentialism or remain Stoic in the face of adversity. Of course, given the setting, we are sure that the Epicureans were also well-satisfied!
More seriously, it seems to us that certain trends are becoming ever clearer:
Pricing in NatCAT is likely to continue to soften
- Reinsurers are increasingly seduced by the so-called hedge fund investment model, but are not wholly convinced about the extent to which they should embrace it; or how doing so will affect their ratings
- The multi-channel capital delivery mechanism is here to stay- traditional, alternative, ILS, sidecar…
- The continuing surfeit of capital means that even a “megaCAT” of USD 100MM may not be sufficient to cause a sustainable hardening market, because attempts to increase pricing will attract yet more, non-legacy capital
- Capital may be considered relatively cheap at present; but, for most, the returns on it are likely to be in single digits
- Everyone considers themselves to be a better than average underwriter, able judiciously to accept or reject a risk; which, of course, is nonsense
- If you ain’t in “cyber”, you ain’t a player. We can only imagine such enthusiasm at some point ending in tears for many participants, given the potential scale and impact of a serious breach
- Apart from “cyber”, there is an anxious hunt for new products and new geographic markets.
This evolving paradigm leads all of us at Awbury even more convinced that our focus on underwriting complex credit and related risks, indifferent to the perils of NatCAT, but well aware that there is significant untapped potential in our E-CAT (Economic Catastrophe) space, is the right way to go, as long as we remain adaptable and disciplined. As always, we will continue to deliver solutions to our clients’ real issues, in a way that is no commoditized or price-driven, yet provides our Insureds with clear and capital- and cash-effective benefits, and our partners with excellent risk-adjusted revenue streams.
-The Awbury Team