Everyone’s a winner – Howden Re’s Ronda on the state of the reinsurance market

Could the good time market of 2024 continue for some time to come? Tim Ronda, CEO of Howden Re, thinks so.

Mid-year is an important time for property and casualty (P&C) reinsurance brokers. There may be time for holidaying, there’s also important work to be done, first at the 1/6 and 1/7 reinsurance renewals, after which the intermediaries issue their take on the reinsurance market at the halfway point – reliably doing their best to frame it in glass-half-full terms for reinsurance buyers.

That’s before the top executives head off to Monte Carlo, and reinsurance brokers begin the months of data collection, pitching and negotiating for their insurer clients buying yet more reinsurance at the big 1/1 renewal.

This year, following a flattish 1/1, reinsurance brokers have consistently talked about a market in equilibrium, but tilting towards softening prices, reinsurers willing to deploy some more capacity for the right risks, and cedants able to gain a better deal by differentiating themselves.

Tim Ronda, described by host Mark Geoghegan as “the consummate reinsurance broker” is the latest executive to feature on the Voice of Insurance podcast.

“I think it’s one of these rare moments where I think everybody can win,” the CEO of Howden Re told Geoghegan.

The flat calm of 2024 contrasts with the anxiety and spiking pricing during negotiations in late 2022, ahead of the 1/1 2023 renewals, with reinsurance brokers struggling to find capacity, and when they did, finding prices and terms that came as shocking news for cedants.

Ronda recalled the “tumult and the disruption and the lack of capital” in November 2022 that delayed quoting, putting more pressure on brokers, leading to “stressful conversations”.

Fast forward to July-August of 2024 and Ronda noted that for a “well-run insurance company” primary rates will have risen since then, in part due to the higher cost of insurance, but also inflation of other costs, and claims pressure from social inflation hitting liability lines, while storm activity has buffeted property business.

“Insurance companies are making money; reinsurance companies are making money,” Ronda said. “They’ve changed some of the terms and conditions; they’ve removed some of their exposures and some of their retentions to some of the smaller or non-peak peril losses, and they’re making money.”

For intermediaries, the breathing room provided by the market turn also adds to their latitude to be flexible and innovative, in terms of structuring programmes for cedants.

“The thing that’s really fun is, we in the middle, who are just trying to make deals happen, because there’s more capacity, we’re able to start being creative and do unique structures again,” he said.

Ronda said he hopes the current situation continues for some time to come.

“I’ve been in this business since 1996 and there are some periods where one of those three principles are winning and two are losing. There’s time where there’s two winning and one losing. But I think to be in a period where all three can win is a nice period. I kind of hope we’re here for a couple of years,” he said.

Geoghegan suggested that the lack of a big wave of capital coming in may argue in favour of stretching out such conditions, while a rise in reinsurance capital is largely taken up with retained profits of reinsurers.

Part of the explanation Ronda offered for what has occurred – and what may still happen – is that the conditions of the 2022 spike in reinsurance rates were different to previous market turns, marked by a lack of reinsurer profit, cumulatively, in a six-to-eight-year period, rather than a single storm event or factor.

“I think what ended up happening was investors in collateralised reinsurance lost some faith in people’s ability to model smaller storms or non-peak peril losses,” Ronda said.

“Investors in publicly traded P&C companies grew tired of a 6% return on equity rather than 15%,” he continued.

“It’s going to take a couple of years to convince both sets of those investors that the changes that have been made are long term changes in profitability,” Ronda said.

Ronda described the re/insurance business as “an incredibly attractive business”, before noting that where rates may soften, these are smart and sustainable underwriting decisions in areas that have been highly profitable – pushing the angle that this is a market not just in momentary balance, but with some longer-term staying power.

“I think it’s one where both insurance companies and reinsurance companies can generate substantial returns for investors of all forms, but it required a little bit of a shift. I think we’re seeing that shift, and I think we’re going to be in that period for some time now,” Ronda said.

“Some classes of business went up 300%. They might see some reductions, but those reductions are rational and they’re profit-based decisions, rather than irrational, in an overabundance of capacity, and people making poor underwriting decisions. I think these are good underwriting decisions,” he said.

“I think we’re going to be in this period for several years, where individual classes will ebb and flow, and I think eventually capital will start flowing back into the business in a more material way, when people can prove the type of return that can generate for investors is sustainable,” he added.