Discipline will help maintain market conditions with possible rate softening ahead: ReFlex CEO

Discipline in the re/insurance market will be essential to enter a period of prosperity and a regular cycle with possible rate softening ahead, Neville Ching, CEO of ReFlex commented at Monte Carlo RVS 2024.

Ching believes that the current market conditions can be sustained, as it seems that every sector is showing responsibility – born from not wanting to disappoint those who provide capacity like investors and stakeholders.

The CEO also believes that it is important to learn from the past to help maintain good market conditions.

“Throughout time, we’ve had pockets of prosperity following difficult years. For example, from 1993 throughout to 1999, the market was very healthy but had some challenges. Then again, 2002 to 2004 a short window, but then 2006 and 2011, there was a good run of five years, and after that a really good run for 2012 to 2017. So there seems to be that we have these five years of prosperity and it’s a general average,” Ching explained.

He continued: “Although, I think it’s different this time. Traditionally we’ve had those three to five years worth of prosperity, but I think that now discipline is here and that is what will take us to this period of prosperity and to be on that regular cycle.

“So I think the cycle is different. Why? Because it has to be. Because the investors are wise and underwriters talk about the cycle, and I think the underwriters are fine with the cycle but the investors aren’t. Looking at tolerances, what we’ve learnt, what we know about portfolio business, mainly through technology, with this you get new modern businesses that know every aspect of a portfolio.

“At the same time, there has been lots of grey areas in portfolios, lots of unknown, lots of secondary and tertiary perils, unknown black swan events that have been in the businesses’ portfolios. But with harnessing really good data, data management, exposure management tools, it becomes a lot easier for them to manage. So all this will take us to those years of prosperity.”

Regarding rates softening or firming, Ching believes that, in this robust market, there are drivers for both softening as well as sustainability.

“Everyone seems to be very financially oriented. I think terms and conditions, level of attachment, and everything else that other people are talking about, looks very similar to, for example, 2017 when the average index – according to the likes of Munich, Swiss, Guy Carpenter or Aon – was roughly the same as now,” said Ching.

“You’d look at the average total insured cat losses of around $70 billion per year. But now we’re looking at a new normal, between $70 and $80 billion, and everything in a catastrophe portfolio was calibrated to sit around that level. But if you had a year when there were $100 or $110 billions of losses, that would create volatility, and now everything’s been recalibrated,” he added.

Everything has been calibrated and priced to withstand 110, 120, 130, maybe more billions of dollars of insured cat losses in a year, Ching explained, highlighting that the market is far more robust, and noting that this is not just about pricing, but about terms & conditions and attachment points.

Ching stated: “There are a number of drivers for softening but there are also drivers for sustainability, and that is not just in dollars, but all the moving parts within a portfolio. In today’s environment, having learnt a lot from the past, having better managing tools, which create more transparency within a portfolio of business.

“Particularly, as a reinsurer ,when you’re gathering lots of information from your clients, achieving the best quality is always the goal, but sometimes there are some grey areas. Our job as a brokerage is to look at the data and look at the results this data captures and the quality of information that can be passed to reinsurers to help manage these grey areas.”

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