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11 September 2020Actuarial & underwriting

Market hardening has a long way to go, warns panel at Bermuda Captive Conference


Businesses should not expect an end to the hardening market any time soon, according to panelists at the Bermuda Captive Conference this week, speaking at a panel session titled Insights on a Hardening Insurance Market.

Al Gier, global director of corporate risk management and insurance at General Motors Company, said the current market is unlike other hardening cycles that people will have experienced because it is hitting all major lines simultaneously. It is occurring more rapidly than previous cycles, he added.

While other hardening cycles were triggered by a specific event, such as Hurricane Katrina or 9/11, this one is being driven by a realisation that re/insurers were not charging enough to make a profit, the panelists said.

Judy Gonsalves, division president at Chubb Bermuda, explained: “This hard market is the result of years of prolonged increased loss severity and frequency across multiple lines of business, following a decade or more of loss cost trends far exceeding the rates being charged by carriers.”

This has forced P&C carriers to reprofile and make changes to their books, she said.

Gonsalves continued: “We have had ten-plus years of loss cost trends exceeding the premium rate, and loss costs are not flattening or falling, they are still rising. That is ten years of delta between the premiums and the losses, it is going to take more than one-to-three years to make up for that. Over time the market will level off but there is a long way to go before that happens in some lines.”

Gonsalves stressed that the market has already been hardening for some time. In excess property the market is into the third year of hardening, she noted, while in casualty this is the second year of hardening.

However, Gonsalves insisted there is no shortage of capacity in the market. “Capacity is available, we just want to be paid for deploying it,” she said.

“With things like climate change we are seeing the risk landscape evolving at warp speed,” said Patrick Tannock, chief executive officer for insurance operations at XL Bermuda. “It is a very fluid and dynamic risk landscape at the moment and nobody wants to insure a burning bridge.”

John Turner, chairman Ed Broking Bermuda, said captives are an increasingly important part of the toolkit and are especially important for renegotiating cover. “There is an opportunity for increasing use of alternative structures, and for using captives in new ways, such as accessing the reinsurance markets,” he added.

Panelists agreed Bermuda will continue to see new providers enter the market, but said this was unlikely to alter the trajectory of market hardening. “They will fill some of the gaps but the hardening market is here to stay in our opinion,” said Turner.

Gonsalves added: “The new entrants coming in will be as disciplined as other providers, their play will be to fill the gaps, not deploy massive lines to drive market share.”