A benign period for catastrophe losses does not mean reinsurers can roll back the structural changes made during the recent market turn, says Peak Re’s Matteo Cussigh.
Reinsurance capacity increased in the past two years on the back of market tightening and the stabilisation of interest rates. We expect capacity to rise further as we have not seen any major loss events in Europe this year. Indeed, catastrophe programs remain clean to date in most countries. Additionally, there is an inflow of capacity due to the return of confidence from capital markets. Ultimately, we expect that fresh capital will be deployed after markets moved away from frictional losses and unmodelled risks, i.e. secondary perils, in the last turn of the cycle.
However, we should not fool ourselves. A single quiet year after a period with high loss tolls does not mean we can return to the former leniency. The underlying losses prior to the market’s turn still weigh on our books and dampen market confidence. They have not been eradicated by the last two profitable years. In fact, many of the risks that caused the market tightening remain in place – be it global warming or the rise in secondary perils such as hail, wildfires, drought or flooding. Moreover, inflation is not entirely off the table, while geopolitical risks are still unresolved.
Initial discussions held at the Rendez-Vous de Septembre in Monte Carlo centred around catastrophe capacity. It remains the largest spend for cedants and the closest we have to a commodity in the European insurance sector. Furthermore, it is where new capital comes into play. Additional capacity requirements will likely remain below capital generation – perhaps except for Italy, where a new mandatory natural catastrophe insurance scheme is being introduced. Inflation-driven growth has subsided for the time being, further dampening demand. In other lines, the situation is more nuanced as plenty of idiosyncratic factors are at play and oftentimes placements are driven by the allocation on the catastrophe side.
REINSURERS TO FOCUS ON THEIR ROLE AS CAPITAL PROVIDERS FOR LARGE EVENTS
In the recent renewals we have seen substantial changes to program structure and panel compositions. Provided there are no major events in the remainder of the year, we are looking forward to a hopefully orderly year-end renewal, with little to no change to current priorities, as reinsurers remain, above all, providers of capital protection in case of large loss events. However, in the context of our broader client relationships, we will discuss with our cedants additional structures that address their concerns regarding volatility and levels of retention.
Dependable capacity is key. This is particularly true in Europe, where cedants favour long-term business relationships over last-minute surprises. Throughout the year, Peak Re invests significant resources in pre-underwriting programs and provides clients with early feedback and guidance on our position for each submission.
At Peak Re we strive to further build our global platform. Earlier this year our subsidiary in Bermuda received its licence from the Bermuda Monetary Authority. In addition, we opened a branch office in India. From here in Switzerland, we are expanding geographically, making further inroads into Latin America and Central and Eastern Europe. Further, we also continue to invest in our team and infrastructure, having just moved into a substantially larger office in Zurich.
AT PEAK RE, RELATIONSHIPS CONTINUE TO COME FIRST
Peak Re has been present in Europe for more than 10 years. We pursue a market strategy whereby we first and foremost build robust relationships with our business partners. As such, we continue to expand across different lines of business, also providing catastrophe capacity, which we consider in the context of our relationship and the potential it provides for further growth.
Rooted in Asia, Peak Re continues to expand its global footprint through strong growth across our platforms in Asia, Europe and the U.S. Over time, we aim to develop into a lead market, where that makes sense, reflecting our long-term commitment.
In addition, we launched our initiative in the structured solutions space one and a half years ago and have since made substantial progress. The hardening market conditions led to increased demand for structured solutions, which help to smooth volatility on cedants’ balance sheets. Furthermore, the elevated interest rate environment in recent years has improved flexibility in the structuring. Due to the strong expertise of our experts across classes, we underwrite life and non-life risks, which is fairly unique in this space.
Matteo Cussigh, CEO, Peak Re Switzerland and head of Europe at Peak Re