Monte Carlo Digital Forum: Covid-19 to drive 'long-term hardening'

Senior industry figures said rates will continue to increase at the January 1 renewals and beyond as the sector grapples with the full cost of Covid-19 to the global economy and the industry.

Speaking on a webinar during Insurance Day's Monte Carlo Digital Forum, Andy Bragoli, chief executive of broker RKH Specialty, said rates were already on the rise but the pandemic has accelerated that upward movement.

“On the loss front the ranges are huge as there is no real landing on the upfront level,” he said, adding the broker’s own rate-on-line index for property catastrophe business saw a 26% increase at the June 1 renewals and he expected that trend to continue.

Bragoli warned the industry would take considerable time to settle on a final figure for Covid-19 losses. “The litigation issue is diverse and complex and we cannot predict the outcome. It may be years before we know the real impact,” he said.

Tom Clementi, chief executive of MS Amlin Underwriting, said market conditions pointed only to a further acceleration in rate increases. “We are in the third year of positive rate movement,” he said. “We saw rate improvement at 1/1 and that has accelerated in 4/1, 6/1 and 7/1.  I think it will accelerate further at 1/1/21.”

Clementi said it was not simply the Covid-19 losses but also the ancillary claims in areas such as directors’ and officers’ and errors and omissions, coupled with the economic downturn that will put further pressure on underwriters.

Volatile capital, low investment returns and shrinking reserve releases will play a part, as might catastrophes in the second half of the year.

“All the ingredients are there to see the market harden,” Clementi said.

“We are in the third year of positive rate movement. We saw rate improvement at 1/1 and that has accelerated in 4/1, 6/1 and 7/1.  I think it will accelerate further at 1/1/21”
_{Tom Clementi
MS Amlin}

“We are seeing strong movement in catastrophe and lines impacted by shock losses such as aviation, engineering and obviously credit,” Blanc said. “Catastrophe losses in the third quarter are accelerating momentum, but we do see some lines where positive movement is being it offset by loss trends.

“If you factor in the loss trends against the rate movement, in my view there are classes which are still not profitable. These are the lines the reinsurance market will try to improve in terms of profitability.”

William Spiegel, deputy executive chairman of Randall & Quilter, said the markets were driven not only by capital but also psychology.

At present it was the psychology that was driving the state of the market, Spiegel said. 

“I think it will be a while before we are able to put a figure on the impact of Covid and this is where the psychology plays a part,” he added. “Underwriters are willing prices to go up. The return on capital was probably just too low over the past few years.”

Blanc and Clementi said there were opportunities for both their firms in the market at present.

“As a company we are not looking aggressively to grow,” Blanc said. “We will write business when it makes sense in terms of margin and return. In terms of cat, I do not see it as an opportunity to grow but hopefully we will see robust pricing and not only in the short term.”

There were opportunities in marine and energy and engineering, given they were classes that would be less exposed to the impact of Covid, Blanc added. 

Clementi said there were areas that remain attractive and Covid had created opportunities. 

“We are not proposing to do anything transformational in 2021,” he said. “In fact, I think there will be few Lloyd’s players that will be allowed to do anything transformational next year. We are looking to grow in certain areas but it all comes down to where your risk appetite is.

“For us our growth will be in a select number of specialty classes, property direct and facultative being one of them, property binders in the US and elsewhere, cargo, energy, both onshore and offshore, renewables, power, mining and utilities.”

He added: “But in the post-Covid world there are also opportunities to be innovative. Covid-19 has exposed some gaps in product offerings and these will need to be filled. There has been talk of capital entering the industry and the market may need some help to do that.”

To hear the full panel session in Insurance Day’s Monte Carlo Digital Forum, click here. The event continues for the rest of the week.