Underwriting comes first
MS Amlin’s Head of Reinsurance is focussing on performance ahead of growth.
By Mark Richardson, London Editor
Ensuring a strong reinsurance underwriting performance has to come before premium growth, according to MS Amlin’s Head of Reinsurance Chris Beazley. The sector has experienced some much-needed rate hikes in 2020 after recent years of heavy catastrophe losses, and this is expected to continue across almost all lines and geographies at the upcoming 1.1 renewals.
The price rises have encouraged several risk carriers, including Munich Re, to claim the sector is now entering a hard market – bringing with it opportunities redeploy capital towards new business on more attractive terms.
Beazley says there has been an increased demand for reinsurance this year, largely owing to uncertainty and financial market volatility caused by COVID-19, and that this opens the door for greater premium volumes, and growth. However, he says these growth opportunities will only be realised if the price of the risk is deemed adequate.
“The focus has to be on underwriting performance and discipline,” he says. “Our aim is to ensure we can provide continuity for clients. If we are going to do that then we need to ensure we are able to provide an acceptable return on the capital we put at risk, and therefore the underwriting performance is paramount.
“It’s not helpful at all to our clients if there’s a disregard for underwriting performance that means we are unable to provide that continuity of service or continuity of product over a longer period.”
MS Amlin underwent a restructure at the beginning of this year that saw the business focus attention and resources on three main units, one of which being reinsurance.
But Beazley explained that while the sector is hardening, capital allocation will continue to be determined by where the best returns are across the group.
“We have long made use of multiple sources of capital,” he says. “Reinsurance has long been a fundamental cornerstone of the MS Amlin business and is absolutely an area we see continued opportunity going forwards as well.
“As we look to next year we’re in a very fluid situation in terms of where capital can be best deployed, but also where our clients’ needs are as well – that’s something we are currently working through at the moment as we look towards 2021.”
Ensuring an adequate return on the capital provided is the key for Beazley, but he thinks establishing what is adequate is complicated by the uncertainty around this year’s losses.
COVID-19 has presented great challenges in quantifying potential exposures, he says, and with the event still ongoing, and full economic repercussions still to be fully determined, reinsurers could be on the hook for heavy losses.
“If we look at COVID-19 that has clearly brought unprecedented levels of uncertainty, volatility and with every indication this is going to provide the industry with a significant loss,” he says. “We talk a lot about COVID-19, but there are still the hurricanes in U.S., and the wildfires in California currently raging. The case for buying reinsurance is pretty self-evident, and therefore I would expect to see increased demand for reinsurance across the property, casualty and specialty spheres.”
Activity of the last 3-4 years has demonstrated that hurricane and wildfire risk is becoming more prevalent, Beazley says, and increasing demand for more traditional products.
However, he thinks the coronavirus has illustrated how the industry still needs to create new products to respond to less well-understood risks.
“The rate change will be an indicator of whether we can generate an acceptable return, but we focus very much on the breadth of products we can provide to clients,” he says. “The rating across all the different products, within property, casualty and specialty, will indicate the extent to which we are able to provide a product that satisfies both our clients’ needs and that return. Rate is one driver, but we also look at where we can provide new solutions.”
