Barring any major insured catastrophe, the industry appears to be on track for an orderly renewal at 1 January 2024, according to Stuart McMurdo, CEO of reinsurance at Scor P&C. McMurdo, who took on his new role following the retirement of Michel Blanc at the end of last year, believes a reset of expectations around structures, wordings, terms and conditions has taken place over the last year.
“What people found difficult at the 1 January 2023 renewal – not just buyers and brokers but reinsurers as well – was the uncertainty around available capacity and how far prices would move,” he says. “We have passed through that period, with the 1 April, 1 June and 1 July renewals becoming progressively smoother.”
But it doesn’t mean capacity is going to be readily available, McMurdo warns, partly because third-party capital is not as abundant. “There is capacity, but it is largely traditional rather than ILS. Capital market funds have realised that reinsurance is a difficult, volatile business. The more mature funds that have been doing reinsurance business for a number of years understand it and will remain in the market; less mature funds were attracted by the seemingly available yield without fully understanding the levels of risk associated with it.
“Meanwhile, traditional capacity will be available – but only for business that is at the right price, right structure, right terms and conditions and right wording – it’s all four of those elements that are critical to the orderly renewal widely referred to for 1 January 2024.”
Participants in Monte Carlo this year will be focused on obtaining more certainty from reinsurers on what they are willing to write and what they want to avoid, McMurdo believes.
“On property, we might see reinsurers getting a little more selective by market when it comes to proportional business and property per risk business. There are markets where these blocks of business are simply unattractive and they will struggle with [obtaining] capacity.
“On casualty, cedants were resistant to change this time last year; then came the realisation that they would have to give up some ceding commission to get programmes home. That theme has continued throughout the year and it should continue into 2024. There is still casualty capacity around, but conditions need to move further than what we have seen so far,” McMurdo says.
Returning to the tacit capacity squeeze, McMurdo thinks the million-dollar question people are asking is: after a year of hardening market conditions, where is all the new capital? “The answer is: it is very limited. Third-party capital remains important but there is limited new capital, unlike what we saw post- 9/11 or after KRW. Also, some carriers that have a double play [insurance and reinsurance] model seem to prefer the primary side of the business as opposed to reinsurance,” he explains.
Scor’s approach to the forthcoming renewal will be to continue with its disciplined approach to underwriting. “We did what was needed through 2023 to reshape our portfolio. Ultimately, we are here to support our clients and we have the capacity to do that – but it will be for the right business and with a desire to secure a sustainable margin,” McMurdo stresses.
Not all the talk around Monte Carlo will be about market conditions. McMurdo thinks climate change is high on the agenda, especially the industry’s role in understanding and managing carbon emissions: “It is critical for EU-based (re)insurers and we take it very seriously,” he says. “But it is a journey. We need to work with clients and brokers around what they are doing in this area and how they can help us gather required information. We all need more data on the underlying business we are writing.”
Climate change is a fast-moving trend, creating new risks and perils that are already being realised, such as flash droughts (as opposed to flash floods) that can result from heatwaves, he says. Meanwhile, the disaster in Hawaii shows how so-called secondary perils such as wildfire are now “front and centre of attention”.
Talent is another big industry topic for the industry’s C-suite executives, McMurdo says. “It’s important for us to work out how we increase training of young people as well as figuring out how we make this industry an attractive first-choice option for young people coming out of university and school.”
“We need to increase the bench strength across the entire industry with young people: it’s an industry wide challenge.”
