By Michael Loney
March 28 - (The Insurer) – Pricing is less of a tailwind now for global carriers that are growing through increased exposure, while “tactical, intelligent” reinsurance buying remains key to performance, Howden Re has said in a 2024 carrier earnings overview report.
Howden Re said the key themes of earnings in 2024 were reserving volatility, widening loss gaps, the importance of disciplined underwriting as pricing stabilizes and capital recovery driven by earnings and investment gains as strong insurance-linked securities issuance.
“It is now clear that pricing is no longer that tail wind that it was, carriers are achieving growth through increased exposure, although exposure remains low compared to long term averages,” said Michelle To, head of business intelligence at Howden Re, in a video released along with the report.
To added that this trend varies by line, with premium growth now outstripping pricing in liability lines. Property pricing also moderated but grew more in line with premiums.
Howden Re said that top-line growth now must come through exposure and not only through price.
“It requires innovation, it’s an underwriters' market but there’s still plenty of economic value to be created,” said David Flandro, head of industry analysis and strategic advisory at Howden Re in the video.
2024 underwriting performance outstripped the average of 2019 to 2023.
The report showed that the average (re)insurer net combined ratio improved by about 3.6 percentage points overall to 88.9% last year compared to the 92.5% average in 2019 to 2023.
Flandro said that 2024 underwriting results were mostly positive for all carriers studied in the report. The most improved performance came from Hiscox, Scor, Hannover Re, SiriusPoint, Swiss Re and Berkshire Hathaway.
“The most improved club has a higher proportion of reinsurance premium,” Flandro said.
Howden Re said the data shows that “tactical, intelligent reinsurance buying remains key to performance” across a range of carriers. Cedents have adjusted purchasing strategies to adapt to a changing loss environment, including from elevated catastrophe losses.
The report said that renewal volumes at January 1, 2025, increased by 4.5%, primarily driven by volume. This increase was lower than the renewals a year previously.
Howden Re said that at this year’s January 1 renewal there was a greater focus on volume to account for premium growth as demand for reinsurance increased driven primarily by growth of exposure, predominately in property.
Pricing decreased slightly predominately for natural catastrophe business offset by a stabilising or increased environment for casualty because of a prudent view on inflation and loss model updates
LA WILDFIRES HIGHLIGHT LOSS GAP
Looking ahead through 2025, Flandro warned that the California wildfire losses will exacerbate secondary peril losses.
“The loss-gap has been a massive topic of conversation over the last six months, especially with the LA wildfires,” said Flandro. “This could end up being a $60 billion to $90 billion loss gap for the LA wildfires alone. It’s an increasing trend worldwide where policyholders and cedents have difficulty obtaining coverage.”
The report highlighted that the costliest natural catastrophe events in recent years have been Hurricane Helene with $56 billion in economic losses and $30 billion in insured losses, Hurricane Milton with $38 billion in economic losses and $25 billion in insured losses, the Noto Earthquake with $10 billion in economic losses and $2 billion in insured losses and the Los Angeles wildfires with $135 billion in economic losses and $43 billion in insured losses.
Flandro said that the “big elephant in the room” is reserve development.
Liability reserves are developing deficiently while workers’ compensation, short tail, specialty and more balance it out.
Flandro highlighted “ugly” liability reserve development for accident years 2013 to 2019.
“The broader point, though, is that calendar year reserve development remains a significant source of profitability,” he said. “The question is: how long does this trend continue?”
The underwriting results and investment returns in 2024 have led to capital growth even after strong dividend growth and share buy-backs.
“This newly robust position is helping to facilitate greater capacity levels on programs,” To said.
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