Reinsurance: state of the market

Six months on from sharing his views on the state of the reinsurance market – and one month out from RVS in Monte Carlo – MD of QBE Reinsurance Chris Killourghy (pictured) joined Re-Insurance Business to deliver a timely update. For the most part, he’s seeing a strong continuation of the same themes, he said, which reflects a move towards greater discipline and organization across the sector.

“A lot of the time in reinsurance, we tend to focus on US property-catastrophe,” he said. “[During] the June/July US renewals, we did see rate coming off in certain places but it tended to be at the much higher attaching layers. We were disappointed to see the rate starting to be impacted this soon after increases went through but we’re very pleased with the discipline being displayed, that the top layers are the ones hit by rate. Further down the programs, we are seeing both rate discipline remain, which is great, and that attachment points are staying strong.”

Unblurring the line between insurance and reinsurance players

Where there has been increased emphasis in recent months has been on reinsurers creating a clearer distinction between where reinsurers and insurers respectively play. In the few years preceding Hurricane Ian, that line was becoming quite blurry.

In Europe, in particular, there have been some secondary perils where reinsurers were not expecting to see losses. The market has seen significant developments on Italian hail (from the 2023 event) as well as some man-made cats such as the New Caledonia unrest. This shows there’s still work to be done outside of the US to ensure reinsurers and insurers have better delineation in terms of where they play, and to make sure they have the right attachment points and rate in place – which, outside of the US, is often discussed on more of a client-by-client basis.

What’s happening with regards to capital in the market

“Another theme on property-cat we’ve seen is buyers buying more limit, which I think is really good for the market,” Killourhy said. “People weren’t trying to drop down their attachment point, the buyers remained disciplined, but we did see some more buyers looking to buy cover at the top of the program – so bringing a bit more demand into the reinsurance sector, which was great to see.

“[…] We’re not seeing tons of new capital coming in, which is good for the most part. We have seen that some of the traditional reinsurers who have been around for a while have restored their balance sheets during the last four months. So, they’ve had a little bit more capacity to deploy during the course of this year.”

Overall, Killourghy sees that the market is “in a good space”. Traditional reinsurers are becoming a little bit more confident, he said, but the market’s not in a place where rates are so attractive that it’s bringing in tons of new capital and people are seeing the opportunity to make a fast profit.

Building a strong track record

The reinsurance sector went through several years of not covering its cost of capital, Killourghy said, before 2023 saw the market make a strong return. However, one year of generating a return is not going to be enough for new investors to make a hairpin turn towards wanting to invest in reinsurance.

The industry has to build a track record over several years in order to prove it can be a good custodian of capital.

“Outside of property-cat, in casualty, we’ve seen a lot of companies reporting prior-year developments on some of those older casualty years,” he said. “That is causing reinsurers to look at the balance of their portfolios. Some reinsurers who felt maybe they’d become a little bit overweight in casualty have now looked to decrease their weighting to casualty.

“It doesn’t mean they necessarily felt it wasn’t good business, but maybe they felt they were just too exposed to reserve risk.”

The final theme Killourghy expects to emerge amid discussions at Monte Carlo is around cyber, especially in the light of the CrowdStrike incident. He believes that the event serves as a great opportunity to open or re-open conversations.

“It gives us a proof point to ask how we feel about that loss, was it expected, was it priced in, are we managing accumulations sensibly?” he said. “And I think it gives us a good case study – both for the insurance and the reinsurance sectors – to look at how we think about cyber.”