The Awbury Team attended the latest MCRV; and, fortunately, survived the experience relatively unscathed, relying upon robust constitutions, careful risk selection (quality, not quantity [of alcohol]); and not much sleep.
As has been the case in recent years, one could detect that same yearning for the days when the market was a gentler, more forgiving place, in which the phrase “technical price” was not uttered through gritted teeth and in which “it cannot go any lower” was not met with a rolling of the eyes and a knowing smile at the naiveté of the speaker.
The recent Aon Benfield market outlook noted, “…ample capacity remains available to support current growth aspirations…” and “reinsurance capital is at peak levels”. Consider also the following statistics derived from the same Aon Benfield report: From 2008 to 2015, overall reinsurer capital increased by 70% (sic) to USD 585BN; yet, during the comparable period, cessions to non-affiliates from US primary insurers only increased by 18% to USD 80BN. There has been a recent modest uptick in cessions as a percentage for premia, but they remain at relatively lower levels. It is, therefore, not surprising that rates have remained under downward pressure, even if the discussions on the topic at MCRV were not as robust as some would have wished and there was little consensus on “what happens next”. At some point, reserve releases will no longer be available to flatter Combined Ratios and pricing in many segments will reach (if it has not already) “walk away” levels.
Given all that is so, any improvement in available returns is likely to come from a sustainable increase in demand from primaries in commoditized areas such as NatCAT (perhaps through deeper market penetration into currently underserved geographic areas), “hot” new segments such as “Cyber” (but be careful what you wish for!), or from writing business that is not price sensitive, but is based upon the needs of a client who finds its difficult, if not impossible, to find the appropriate cover elsewhere.
At Awbury, we have continued our work on broadening the portfolio of products that we can tailor for our clients, as we not only adapt the results of our own research, but also respond to enquiries from our expanding client base.
In consequence, we believe that there is growing interest in areas such as the much-maligned O&G sector, and in infrastructure, as well as in extensions to the concept of capital relief- and not just in the banking sector- with more rationality in allocating capital to the side of the balance sheet where it can earn the most efficient and better risk-adjusted return. It no longer makes sense (not that it ever did!) to emphasize one side of the balance sheet over the other, or to assume that an investment exposure has to be taken on the asset side.
So, as summer fades in the northern hemisphere, and thoughts inevitably turn to “next year”, it is worth re-considering how to meet and exceed your budget targets, and where to seek profitable new business.
The Awbury Team