{"id":9292,"date":"2025-01-16T11:12:37","date_gmt":"2025-01-16T11:12:37","guid":{"rendered":"httpss:\/\/www.advantagego.com\/?p=9290"},"modified":"2025-03-12T06:25:23","modified_gmt":"2025-03-12T06:25:23","slug":"voi-podcast-with-david-flandro-and-james-vickers","status":"publish","type":"post","link":"https:\/\/www.advantagego.com\/en-us\/content\/voi-podcast-with-david-flandro-and-james-vickers\/","title":{"rendered":"Decline and Differentiation \u2013 1\/1 digested"},"content":{"rendered":"\n<p><iframe title=\"Ep237 David Flandro Howden Re: 1.1.25 - The water is still warm\" allowtransparency=\"true\" height=\"150\" width=\"100%\" style=\"border: none; min-width: min(100%, 430px);height:150px;\" scrolling=\"no\" data-name=\"pb-iframe-player\" src=\"https:\/\/www.podbean.com\/player-v2\/?from=embed&amp;i=x6zd2-17a21b3-pb&amp;share=1&amp;download=1&amp;fonts=Tahoma&amp;skin=3267a3&amp;font-color=&amp;rtl=0&amp;logo_link=&amp;btn-skin=1b1b1b&amp;size=150\" loading=\"lazy\"><\/iframe><\/p>\n\n\n\n<p><iframe title=\"Ep238 James Vickers: 1.1.25 - Not a Blind Soft Market\" allowtransparency=\"true\" height=\"150\" width=\"100%\" style=\"border: none; min-width: min(100%, 430px);height:150px;\" scrolling=\"no\" data-name=\"pb-iframe-player\" src=\"https:\/\/www.podbean.com\/player-v2\/?from=embed&amp;i=5t9qb-17a22e6-pb&amp;share=1&amp;download=1&amp;fonts=Tahoma&amp;skin=3267a3&amp;font-color=&amp;rtl=0&amp;logo_link=&amp;btn-skin=1b1b1b&amp;size=150\" loading=\"lazy\"><\/iframe><\/p>\n\n\n\n<p><strong>Two insightful Voice of Insurance podcasts with Senior Broking Executives from Gallagher Re and Howden Re illustrate the recent 1 January reinsurance renewal.<\/strong><\/p>\n\n\n\n<p>Reinsurance renewals on 1\/1 saw rates slide, but from a high place, while data and differentiation were able to convince reinsurers even about casualty concerns.<\/p>\n\n\n\n<p>This was the compound conclusion from two Voice of Insurance podcast episodes, the first with David Flandro, head of industry analysis and strategic advisory at Howden Re; and the second with James Vickers, chairman of Gallagher Re International.<\/p>\n\n\n\n<p>The two brokers both put out meaty reports dissecting 1\/1; Howden Re\u2019s was entitled \u201cPast the Pricing Peak\u201d, and Gallagher Re\u2019s was called \u201cDifferentiation Rewarded\u201d; and unsurprisingly, those messages are two leitmotifs of Flandro and Vickers\u2019 comments.<\/p>\n\n\n\n<p>1\/1 marked the first \u201cacross the piste\u201d decline in reinsurance rates since the same renewal in 2017, according to Flandro.<\/p>\n\n\n\n<p>\u201cIf you look at everything property, casualty and specialty, and you take the average, this was the first time in about six or seven years that we&#8217;ve seen rates decline,\u201d he says.<\/p>\n\n\n\n<p>The market is also beyond the capital trough, and terms and conditions tightening, he says, since giving way to increased capacity and more competition, especially for loss-free programmes.<\/p>\n\n\n\n<p>Supply is exceeding demand, in essence. Howden Re measures dedicated reinsurance capital as a measure for supply. Howden Re\u2019s analysis estimates $463bn of dedicated reinsurance capital, an increase of 10% that&#8217;s been supported by the growth in asset values for traditional carriers.<\/p>\n\n\n\n<p>Vickers agrees, emphasising reinsurers\u2019 appetite for growth.<\/p>\n\n\n\n<p>\u201cThe bulk of the capital growth has come from the retained earnings of the major reinsurers, and they clearly want to put that to good use. What was noticeable this year as compared to 2023 where reinsurers were still well capitalised but were nervous about putting their capital to work, this year, they wanted to grow,\u201d Vickers says.<\/p>\n\n\n\n<p>Property catastrophe limits increased \u201ca little\u201d, he suggests, but, in return, the growth was not enough to meet reinsurers\u2019 ambitions.<\/p>\n\n\n\n<p>\u201cUnfortunately for them, the amount of growth was relatively limited. What we&#8217;re beginning to see is the unwinding of the high inflation impact that, particularly in the Western markets, in Europe and US, [which] has helped to boost underlying growth,\u201d Vickers adds.<\/p>\n\n\n\n<p>The bulk of capital growth has come from retained earnings among major reinsurers, something that was already evident a year ago, but reinsurer sentiment has changed, \u201cwanting to put that capital to good use\u201d, according to Vickers.<\/p>\n\n\n\n<p>Supply is coming back into the market, Flandro observes.<\/p>\n\n\n\n<p>Reinsurers have experienced profitable growth, with the best hard market peak experienced since the 1\/1 after Hurricane Katrina (2006), and possibly Hurricane Andrew (1\/1 1993), the scale of which trigged catastrophe risk modelling.<\/p>\n\n\n\n<p>\u201c2023 was the golden year. The end of 2022 would have been the optimal time to invest. That was when everyone was fearful. An astute investor would have been greedy,\u201d Flandro says.<\/p>\n\n\n\n<p>Prices are still high enough for reinsurers to feel good about increasing their appetite.<\/p>\n\n\n\n<p>\u201cRates remain very elevated, and we now have a couple of years of loss experience pursuant to the terms and conditions set at 1\/1 \u201823, to prove it, and the capital is now starting to come in.\u201d<\/p>\n\n\n\n<p>He sums this feeling up with a nice analogy: \u201cThe water is still warm \u2013 it&#8217;s still fine.\u201d<\/p>\n\n\n\n<p>The imagery is backed by statistics, citing economic value-add, which goes beyond return on equity, to include return on debt as well as equity, relative to cost of capital.<\/p>\n\n\n\n<p>\u201cIt&#8217;s notable that the economic value-add of reinsurers, particularly in Bermuda, but also in London and elsewhere, is higher than it&#8217;s been for a very long time,\u201d he says.<\/p>\n\n\n\n<p>\u201cThat\u2019s commensurate with heightening reinsurance share prices and a lower cost of equity, because you have a cheaper cost of issuing equity, if your equity is more expensive. All of that together means that we are at a profit peak for the cycle,\u201d he adds.<\/p>\n\n\n\n<p>As a further feel-good factor for reinsurers, demand went up along with supply. Flandro describes it as \u201crobust\u201d, with premiums rising to $433bn.<\/p>\n\n\n\n<p>\u201cIf you zoom out even further and look at commercial insurance, one of the remarkable things about this renewal is that exposure driven premiums increased for the first time since 2019. Reinsurance exposure, insurance exposure, loss penetration, insurance penetration \u2013 all of that grew in 2024 for the first time since 2019,\u201d he says.<\/p>\n\n\n\n<p>The rise in demand was in part due to moderating prices, but also reinsurance\u2019s relative attraction as a form of capital, \u201cparticularly contingent capital, and particularly in the tail\u201d, he notes.<\/p>\n\n\n\n<p>The increased appetite of reinsurers represents an opportunity for brokers to get covers for their clients that were impossible \u2013 or prohibitively expensive \u2013 just a couple of years ago, something Flandro says the brokers have front of mind.<\/p>\n\n\n\n<p>\u201cIf you&#8217;re a reinsurer, your balance sheet is incredibly valuable to your clients right now, and our job as brokers is to make sure that everybody gets the optimal outcome, particularly clients,\u201d Flandro says.<\/p>\n\n\n\n<p><strong>Differentiation focus<\/strong><\/p>\n\n\n\n<p>Overall, 1\/1 was a market that rewarded insurers who could demonstrate sound data and differentiation within their portfolio, Vickers emphasised.<\/p>\n\n\n\n<p>Amid a blog mainly about market forces, this is at its core a technology trend. The availability to data to replace uncertainty within pricing, is fuelling this leitmotif of differentiation, as host Mark Geoghegan probed, something Vickers wholeheartedly agreed with.<\/p>\n\n\n\n<p>\u201c20 years ago, this data wasn&#8217;t available, even if it was available, the actuarial techniques that computing power wasn&#8217;t there to deal with some of these big data sets, to try to turn it into something useful that a reinsurer could get their head around,\u201d Vickers says.<\/p>\n\n\n\n<p>With more and better data to show reinsurers, cedants, via their reinsurance brokers, are able to demonstrate the merits of their portfolio, and their own management of those risks, soothing the concerns of their reinsurers \u2013 and getting discounts in return.<\/p>\n\n\n\n<p>\u201cAnalytics are at the heart of it,\u201d Vickers continues. \u201cReinsurers want to grow, but they want to convince themselves that the risk they&#8217;re taking is adequately priced, and the more data they can have to convince themselves that this 10% rate reduction is justified, to write this business as a decent margin, they&#8217;re happy to do that. The reinsurers themselves are getting a lot more sophisticated in their pricing, so they are more demanding, and they go into far greater detail.\u201d<\/p>\n\n\n\n<p><strong>Casualty concerns<\/strong><\/p>\n\n\n\n<p>With the absence of a systemic-level hurricane hit in 2024 \u2013 instead, two very near misses \u2013 the focus has been on casualty business. Vickers underlines that nowhere is the differentiation emphasised by Gallagher Re\u2019s analysis of 1\/1 more relevant than in negotiating reinsurance for casualty business.<\/p>\n\n\n\n<p>\u201cSomething that&#8217;s often forgotten is that you can look at certain classes of casualty business, and then if you look at the top quartile primary underwriters, and the bottom quartile, the difference is stunning; in some cases, 70-80 points difference. Teasing that out and giving reinsurers the confidence that your underwriting is producing this dramatically better portfolio, is crucial,\u201d Vickers says.<\/p>\n\n\n\n<p>Some reinsurers are shying away from casualty, thinking aggregate rate rises on the primary side are still insufficient to offset loss trends within this long-tail business, while others are content to maintain or even increase their presence, based on cedants being able to demonstrate differentiation, Vickers stresses.<\/p>\n\n\n\n<p>He suggests general comments on casualty \u201care misleading\u201d because of the nuance caused by this variance between the performance of individual portfolios, and the many lines of business within the class.<\/p>\n\n\n\n<p>Flandro emphasises the need to distinguish between the many lines of casualty business, as well as between US and rest-of-the-world trends. Reinsurers and brokers are doing more \u201csurgical analysis\u201d of the portfolio loss year trends within all these strands of business, he notes.<\/p>\n\n\n\n<p>Accident years between 2013 and 2019 are under scrutiny for commercial auto and reinsurance liability, but areas such as workers\u2019 compensation and anything shorter tail are in reserve surplus, evening up the overall picture, he suggests.<\/p>\n\n\n\n<p>Flandro looks back on the liability crisis that still haunts such conversations, something he thinks is inappropriate. \u201cThis is not that,\u201d he says. \u201cWhat&#8217;s happening here is that we&#8217;re just experiencing a normal cycle. I don&#8217;t believe it&#8217;s a crisis.\u201d<\/p>\n\n\n\n<p>While reinsurers attitudes to casualty may differ, in the aggregate, from a broker or buyer\u2019s perspective \u201cthere was adequate capacity, people got everything done they wanted done\u201d, Vickers summarises.<\/p>\n\n\n\n<p><strong>Property cat<\/strong><\/p>\n\n\n\n<p>Rate-on-line (ROL) in property catastrophe was down by 8% at 1\/1, risk-adjusted, against last year\u2019s 3% rise, according to Howden Re. However, all of that has to come in the context of the 37% hike seen at 1\/1 2023.<\/p>\n\n\n\n<p>\u201cIt&#8217;s really important to note that we&#8217;re coming off of a very high, high,\u201d Flandro says.<\/p>\n\n\n\n<p>Flandro\u2019s ROL index is not a like-for-like premium index, based on limit, but rather using exposure as the denominator. He stresses the need to begin any analysis with several years of context.<\/p>\n\n\n\n<p>\u201cWe\u2019ve been through the most capital volatility in the sector since the financial crisis,\u201d he says. \u201cBy our measure, 1\/1 \u201923, was the highest level of risk adjusted property catastrophe pricing since the advent of cat modelling.\u201d<\/p>\n\n\n\n<p>For the two 1\/1 renewals between 2020 and 2022, cedants retained about 54% of modelled cat losses, Flandro reveals, with reinsurers assuming 46%, citing the broker\u2019s \u2018Tiger Eye\u2019 layer simulation tool.<\/p>\n\n\n\n<p>\u201cBy 1\/1 \u201823, and further into 2023, we got all the way down to 67\/33, and that was quite extraordinary,\u201d Flandro says.<\/p>\n\n\n\n<p>While he was quick to say he doesn\u2019t yet have enough data in detail, it is clear that the ratio of retentions will have moderated again and gotten closer to the pre 2023 peak.<\/p>\n\n\n\n<p>\u201cThere&#8217;s still quite a long way to go, and many reinsurers would argue that 54\/46 was probably too close, and that&#8217;s why rates needed to go up, but those retentions got up to an all-time high,\u201d Flandro says.<\/p>\n\n\n\n<p>With each new hurricane season \u201clooming in the back of one\u2019s mind\u201d is the probability of a several hundred-billion-dollar cat event. Flandro warns about \u201cbrushing off\u201d the two big hurricanes last year \u2013 Helene and Milton \u2013 both of which represented \u201cvery close calls\u201d, he emphasises. \u201cI would be loath to say that the storm is over,\u201d Flandro adds.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Two insightful Voice of Insurance podcasts with Senior Broking Executives from Gallagher Re and Howden Re illustrate the recent 1 January reinsurance renewal&#8230;<\/p>\n","protected":false},"author":2,"featured_media":6801,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false,"footnotes":""},"categories":[19,26],"tags":[39],"line-of-business":[28,20],"class_list":["post-9292","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-podcasts","category-latest-insights","tag-reinsurance","line-of-business-general-liability","line-of-business-property"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/posts\/9292","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/comments?post=9292"}],"version-history":[{"count":0,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/posts\/9292\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/media\/6801"}],"wp:attachment":[{"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/media?parent=9292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/categories?post=9292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/tags?post=9292"},{"taxonomy":"line-of-business","embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/line-of-business?post=9292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}