Is it time for a new reinsurer to enter the market?
Canada’s hard market in reinsurance has some execs wondering if the time is ripe for a new reinsurer to enter the Canadian market.
Until Jan. 1, 2023 renewal season, Aon Reinsurance Solutions president and CEO Matt Wolfe said he never thought he’d see a “more problematic” reinsurance market than the one following the 9/11 terrorist attacks in the United States.
“The reinsurance market hardened overnight dramatically,” Wolfe said Thursday during a panel discussion at Insurance Bureau of Canada’s (IBC) Commercial Insurance Symposium in Toronto. “Capacity was gone, pricing was up.”
Estimates of insured damage from the terrorist attacks range from about $30 billion to $50 billion.
But within a few months of the attacks that claimed nearly 3,000 lives and caused massive property damage, the reinsurance market became so attractive that new players were formed. For example, Arch Capital and Axis Capital — each with more than $1 billion of capital — were created and investors were investing themselves or raising money, Wolfe said during the Commercial Insurance Market — What’s on the horizon panel discussion.
“There was more premium, prices [went] down. And so the hard market was short.”
Enter the Jan. 1, 2023 reinsurance renewal season in Canada. Back in April, Donald Callahan, managing director of Guy Carpenter Canada, told a CU webinar that some Canadian Cat portfolios without a significant loss history saw increases of 25% to 30%, while other portfolios with losses saw their reinsurance rate increases climb as high as 50% to 70%. Terms and conditions were tightened as well.
“Right out of the gate, 1.1, we have unprecedented property [losses],” Marc Lipman, president and attorney-in-fact at Lloyd’s Canada, said at IBC’s symposium Tuesday. “And those are costs that many direct writers didn’t factor into their business models.”
But unlike after 9/11, no new reinsurers popped up. There has been some new capital, but no material flow on the insurance-linked securities side, Wolfe said.
“And there’s not been a single new reinsurer. In fact, all we keep hearing is insurers exiting property casualty insurance.”
A variety of factors are contributing to reinsurers’ costs, from geopolitical uncertainty such as the wars in Ukraine and the Israel-Hamas conflict, to inflation, said Claus-Ulrich Kroll, president and CEO of Munich Reinsurance Company of Canada and Temple Insurance Company. “There’s a question of pricing but also reserves,” he said.
And that doesn’t factor in Canada’s unprecedented wildfire season, flooding, severe convective storms and other natural disasters that have already cost Canadian insurers more than $3 billion in insured losses this year.
What’s in store for the reinsurance market?
“I think it has a lot to do with how the underwriters and their management view their plans for 2023 and whether they really prioritize ultimately profitability or some of those top-line targets that were set at a time when maybe things were a bit more optimistic from an underwriting perspective,” Lipman said.
“We’ll see where it finally lands but I do sense a high degree of competition in the marketplace, certainly in the last couple of months, and I don’t suspect that will change in the New Year.”
There will likely be a more orderly reinsurance market in 2024, AM Best senior director Greg Williams said during the rating firm’s recent Canadian insurance market briefing in early October.
Wolfe expects at least a year or two until reinsurers see a more historic, mid-teen percentage return on capital. “Then maybe we see either more capital flow in, sidebars, pension funds… behind-the-scenes transactions that help reinsurers’ balance sheet and/or the formation of new reinsurers.”
Feature image by iStock.com/Rudzhan Nagiev
