NEWS
Hard market should last at least another year
Reinsurers need to deliver double-digit returns even when a Hurricane Ian-sized catastrophe strikes in order to prove the market is sustainable, says IQUW’s Rene Lamer.
The hard market in property reinsurance is likely to continue at least through 2024, the head of reinsurance for IQUW’s Bermuda business told APCIA Today.
Rene Lamer, head of reinsurance for the re/insurer’s Bermuda operations, says the market is the hardest he has experienced since 2006, when he was working for Endurance Specialty (now Sompo International) which was formed in the wake of the 9/11, 2001, terrorist attacks and was an important player after Hurricane Katrina.
Lamer, who joined IQUW from Sompo soon after its Bermuda companies were formed two years ago, said rates are likely to continue to remain strong because it will take some time for the factors causing it to change.
“What makes it a hard market is there are a lot of factors in play that won’t go away reasonably quickly,” he said. “We have a strong interest rate environment, we have a relative lack of supply (of capacity). Some funds have been coming in but we have a lot of latent demand which will trickle in as the supply comes in as well, leaving things at a pretty even place.
“A lot of companies we spoke to last year would have purchased more reinsurance if they had had the budget,” he said. “So as that demand comes in, it will keep things fairly stable.”
Lamer, who is Bermudian, said that on the supply side, investors are still “very cautious and are still not certain, even at these rates, that property-catastrophe makes sense”.
“It will take a couple of years at least to get that confidence back,” he said. “Time will tell but everyone is agreed that in order for this to be sustainable, reinsurers need double-digit returns for more than one year.
“In order to have double-digit returns on a regular basis, you have to have double-digit returns even with a Hurricane Ian-like event, not necessarily in Florida—it doesn’t have to be in the US, but something like that.
“Reinsurers need double-digit returns for more than one year.“
Rene Lamer, IQUW
“We are close to that, I don’t think we are actually there, but we are very close.”
Lamer agreed that if the rest of 2023 was relatively benign from a natural catastrophe perspective, investors should get the return they are looking for this year.
“This year from a combined ratio perspective should be good. It’s been a long time since there has been a good year from a catastrophe point of view.”
Lamer said it was possible that solid underwriting profits in the catastrophe segment would not necessarily translate to a company’s bottom line because some money could be used to bolster reserves on its casualty book.
But he doubted reinsurers would be reducing rates in the 1/1 renewal period.
“It depends on the region and peril,” he said. “But it is very difficult to see rate relief in Florida or the Midwest. Capital is so precious, I can’t see anyone giving it away for less than they did last year.”
Lamer added that he expects IQUW to continue to underwrite property-catastrophe around the world, including in the US and in Japan, a market he knows well after running Sompo’s Asia-Pacific portfolio.
He said the book is likely to see steady growth this year, while the re/insurer continues to move towards getting its Bermuda-based reinsurer rated, which he said was likely to happen in time to write business in 2025.
In the meantime, the company, which has grown rapidly in the last two years on a global basis and has hired 250 staff, should write around $1.6 billion premium in 2025, up from an estimated $1.3 billion this year. The company writes 11 insurance lines and three reinsurance lines now, he said.
“Our business plan is for continued growth although that will level out as we slow down on new lines,” he said.
Main image: Shutterstock / Martin Bergsma
