Many are still reluctant to discuss figures and will broach only broad ranges regarding their estimates for the storm, between perhaps $30bn-$60bn.
However, it is still possible to detect some reading of their internal gauge on the loss. Even without putting figures on it, it becomes evident whether they are amongst those fearing a $50bn-$60bn loss that risks becoming a capital event, or struggling to tot up claims to support a ~$40bn earnings-loss type figure.
The major split between the two groups comes down to the estimation of how flood losses will work their way into the market, alongside uncertainty over the impact of demand surge combined with inflation, overlaid with the challenge of forecasting for the claims litigation environment.
Amongst those in the bearish camp, the depiction focuses on the high likelihood of leakage of storm surge claims into the wind market, and the decent levels of take-up for private flood coverage in the state versus lower uptake nationwide.
Those in the bullish camp emphasize that the storm surge losses should be clearly ruled ineligible for homeowners policies, and the degree to which high building codes appear to have protected homes further inland from the level of devastation predicted by models.
Different views, same destination
But in one sense, the difference between the two groups is less material than might be expected, with each foreseeing a similar outcome. Both groups expect far more dislocation ahead than before Ian struck, and the variation between their projections is more of a continuum than a set of vastly different outcomes.
One, likening the mood to the post-Katrina/Rita/Wilma market described a sense of “tension, anxiety, nervousness”.
Another went back to the prior hurricane-led hard market after Andrew, suggesting that the market had entered its “fear phase”. “Thirty years on and it feels like we’re right back there.”
Ironically, even some of those in the bearish camp seem to ascribe relatively little importance to Ian in and of itself in pushing cat treaty towards a hard market.
Instead, the hurricane is seen as a “catalyst to fuel the change” or an accelerant to the existing dynamics of a hardening market, rather than the key determinant.
After all, a pending capacity crunch was already clear at Monte Carlo amid discussions of the $15bn-$20bn of projected new demand due to insurers wanting to maintain coverage on inflating values in their portfolios.
Clearly, this is now set to be exacerbated, although by how much remains to be seen.
Factor in trapped ILS capital, which sister title Trading Risk has estimated could be in the high teens of billions, and the supply on offer to match that will be notably less than it was before.
Meanwhile, publicly traded reinsurers may not have “trapital” constraints but they are trading poorly, and have also suffered major mark-to-market losses squeezing book value.
It may still be early days after the storm, but it is clear that capital providers will need a lot of convincing to return to according any franchise value to cat underwriting.
This means that the conversations that were being had around pushing up reinsurance attachment levels to compensate for inflation will gain impetus, along with the rate conversation and other structural changes being pushed by reinsurers.
Extended top layer coverage will be more critical for insurers from a capital/ratings perspective and, with capacity shortfalls, the only way to do this will be to push up attachments materially.
“Each client has to create their own room for this [new] limit up top,” one explained.
At the primary level, the winners in this scenario will be those who have the means to work through this strategy and have the capital and risk tolerance to take more risk net. Carriers including the Florida domestics - but also other highly leveraged, reinsurance-reliant players - will be hugely challenged.
“Capacity will take precedence over price,” one said, noting: “There will be people who can’t find it.”
While at Monte Carlo, some reinsurers were signaling a willingness to deploy incrementally more limit if rate gains reached a certain level, a senior broker noted that those signals appeared to have been shut down.
“The problem is [reinsurance capacity] staying flat is going backwards for us,” they observed.
How broad will the turn be?
With all the focus on the cat market, casualty and specialty risk has not had much of a look-in at this conference.
It is therefore harder to gauge how broad-based the market turn after Ian will be at this stage, but many of the underlying factors pushing up property rates including inflationary fears are present in long-tail lines.
Aon US reinsurance solutions co-president Stephen Hofmann told this publication that even before Ian, October 1 casualty XoL renewals had been tight as reinsurers pushed back on certain features. But reinsurers were continuing to leverage the cat limit they were seeking to deploy to secure business in other segments.
Of course, the bigger part of US casualty lines consists of quota share covers where the question is more one of whether ceding commissions have topped out, or if they may actually fall from historically elevated levels.
People think pressure is building on cedants because: a) there is some momentum for reinsurers to secure via leveraging cat capacity to put pressure on casualty ceding commissions; b) there are fears that social inflation is driving severity materially higher; c) more loss emergence is appearing (particularly in D&O) in the 2014-18 underwriting years; and d) there is just more concern that the overall inflationary environment will ultimately seep into loss costs.
In professional lines, the rapid reversal of primary D&O pricing and the emergence of pressure in E&O will also be supportive to reinsurers pushing back on cedes.
Others, however, point to strong profits shared with casualty reinsurers in the past couple of years and the general stability in supply as factors that make it difficult for reinsurers to secure gains, even if the upward march of cedes has now come to a halt.
As we try to make sense of a period of intense change, there are many market participants who have never before seen a hard cat market.
But even those who have face a challenge predicting how this will unfold, given that this upcoming hard cat market is driven not just by Ian, but by the heady confluence of post-Irma losses, inflation and an economic crisis.
