No significant shift in premium from current price levels expected at renewals: Stahel, LGT

Even without any major catastrophe loss events over the rest of the year, Michael Stahel, Partner and Portfolio Manager at LGT ILS Partners Ltd., is not expecting a significant shift in premium from current price levels and notes the company will strategically shift capacity between areas of the market to source the best deal opportunities for its investors.

Speaking with Artemis at the 2024 Monte Carlo Reinsurance Rendez-Vous event, Stahel explained that LGT ILS Partners, the specialist dedicated ILS investment unit of the private bank and asset manager LGT Capital Partners, sees the end of year reinsurance renewal price discussion as likely to be nuanced, but also noted that it is important not to be complacent as loss events can occur at any time.

Discussing what drives the price conversation and what factors are front-of-mind at the RVS, Stahel said, “During this period of various conferences in Fall, one of the key questions from our investor base is usually where we see reinsurance pricing for the upcoming year, now that these conferences and meetings are taking place.

“We acknowledge, of course, that the ultimate price level for capacity depends on many factors.

“Each counterparty is distinctly different; underlying portfolios, strategies, market access and loss experiences vary significantly.

“These aspects, combined with important qualitative assessments, are ultimately driving the individual price for reinsurance for a primary insurance company.”

Continuing to explain, “The surprisingly quiet hurricane season currently implies that there should be sufficient capacity available for the renewal round 2025. However, such a discussion is clearly premature as market participants are very much aware that the hurricane season will continue for several weeks and is still able to generate significant activity.

“Living in Switzerland, I recall that back in 2012, I was mounting the winter tires on my car when hurricane Sandy made landfall in New York at the end of October!

“And whilst the level of inflation has seen a significant reduction in recent months, the adjustments in insured values typically lag considerably, and we still expect to see an adjustment for inflation playing a role in the regulatory risk assessment for 2025.”

Summing up that, “As such, even absent of any significant loss event until year-end, we do not expect any significant shift in premium from current price levels.”

Moving on to discuss the various areas where the LGT ILS Partners team source their investments for fund strategies, Stahel noted that not all are equal, in price terms.

“An interesting observation circles around the price difference between the cat bond market and the market for traditional reinsurance transactions. Especially in the first half of 2024, we have witnessed an influx of capital in the cat bond segment, leading to a lower premium compared to private transactions.

“At LGT ILS, we are indifferent around the transactions structure; we like clean and well-structured cat bonds, but with our in-house rated reinsurer Lumen Re, we can transact the same deal in reinsurance format.

“This allows us to strategically shift capacity between the markets, to accommodate the area where capacity is scarcer and placed at more attractive premium levels,” commented Stahel.

While the optionality of being able to access insurance risk in various forms and structures benefits the investor-base of the LGT ILS Partners funds, Stahel also highlighted that cedents can leverage this to their own advantage as well.

“Insurers and cat bond sponsors can apply a similar strategy,” Stahel told us.

“Issuing a cat bond is a longer-termed project, and a swift response to a potentially short-termed capital influx is difficult, if not impossible.

“It may however be advisable for insurers and cat bond sponsors to complete the work and internal approval process for a bond issuance and prepare the organisation to place a bond in the market, but with the clear strategy to only do so if the market is able to absorb the deal at favorable terms,” Stahel suggested.