Investors in the insurance sector are being more selective about capital deployment, as different market cycles are playing out simultaneously, industry executives said during the first day of Inside P&C’s annual conference in New York.
Panelists agreed that although capital is flowing into P&C markets, the pace has decelerated due to high interest rates and increased discipline.
Industry executives are seeing a divergence in the cycles that some lines of business have been experiencing over the last few months.
Property cat and E&S property overall, for example, are going through a hard phase, with rising pricing and tighter limits while, simultaneously, D&O and cyber are softening though public D&O may have finally found its floor.
Axis CEO Vince Tizzio warned on the development in long-tail loss costs, saying: “We think that the bumper sticker for both [insurance and reinsurance] underwriting businesses is vigilance in casualty.”
“We're starting to see increasing precedent in jury verdicts and settlements that demonstrate that there's pressure,” he said.
In personal lines, speakers discussed the severe loss cost trends seen in the segment that even robust rate gains are failing to offset. One executive quipped, “I don’t know if we’ve hit rock bottom, but we’re close”.
They pointed to increased cat activity and severe inflation as key drivers of the rising loss costs.
The non-admitted channel has not only benefitted from strong conditions in the property market but also from the increased flow of business from the admitted market into E&S.
While the non-admitted segment is seeing a "Golden Age", some panelists wondered how long the current cycle can last as the admitted channel looks to draw business back.
But most speakers expect the current growth of the E&S sector to continue, as the flexibility that the non-admitted channel provides is enabling underwriters to look for more creative solutions amid rising lost cost trends.
Vesttoo: ‘A net positive’
Israel-based ILS platform Vesttoo has been immersed in a scandal over alleged fraudulent letters of credit supporting some of the deals in which it was involved.
An executive called the company “the [ILS InsurTech] whose name must not be said”.
While the company has filed for bankruptcy, executives noted that ‘a huge’ dislocation in the capital markets has not been seen nor is it still expected.
On the flipside, conference attendees expect that the controversy will lead regulators, ratings agencies, and market players overall to be more thoughtful about the capital they deploy and be more rigorous regarding due diligence.
This should benefit established players over newer entrants, executives said.
Reinsurance in focus
Despite the challenges ahead, panelists noted that January 1, 2024 renewals are likely to be more orderly than the prior-year period, barring a major hurricane or severe convective storm event over the next few months.
The panelists cited improvements in risk-adjusted returns that could influence a more orderly renewal period.
Executives said that carriers, especially in cat prone states, are becoming less reliant on reinsurance as the risk in the value chain is directed more towards the insureds.
Most panelists agreed that they have seen retentions rise for insurers while others said that recent property reinsurance purchases were executed without a rise in retention.
MGAs and InsurTechs
Executives also mentioned that asset-light vehicles including MGAs are moving into distressed markets such as Florida and California, a trend that’s becoming structural rather than cyclical.
The panelists highlighted the changing role of MGAs, as legacy carriers pull back from cat-prone areas to combat growing losses from hurricanes, severe convective storms and other secondary perils such as wildfires.
Executives added that they think MGAs are here to stay for the long term and that they are filling a necessary gap in the value chain by more quickly deploying capital to where it’s needed.
The execs caveated their overall bullish outlook for these companies with a reminder that Florida and other cat-prone states, such as Texas, South Carolina and Georgia, are in a “tough spot”. Making matters worse, the exposure base in these states is growing as people migrate to them in high numbers.
AI is only as good as your data
They added that the “growth at all costs” mentality is out the window, and the conversation between investors and companies now centers around accurately predicting loss ratios and insurance fundamentals.
Executives noted that capacity providers’ patience levels are historically low, and they are more focused on profitability than ever before.
They added that companies, especially InsurTechs, are aiming to blend domain talent with insurance-specific talent. In the past, the thought process was to hire as many technology-focused people as possible and worry about the insurance part second.
Speaking on AI, panelists emphasized the importance of a wealth of data and data maturity. “AI is only as good as your data,” one executive opined.
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