Specialty carriers give little hope for market softening during Q1 results

Comments during first-quarter results from leading Bermuda-based specialty (re)insurers over the last couple of days strongly suggest that the economic and financial fallout from the ongoing war in Ukraine is replacing Covid-19 as a reason for maintaining a firm stance on pricing, terms and conditions as risk managers prepare for their coming renewals.

Had Russia not invaded Ukraine just as the Covid-19 crisis was beginning to abate, risk and insurance managers in Europe and worldwide may have expected the healthy results posted by insurers during the last few quarters to spark fresh competition for their business and lead to a softening of market conditions.

But faced with the uncertainty caused by Russia’s onslaught and related risks such as supply chain problems and rising inflation, insurers are all telling a similar story as they publish their first-quarter results: This market is not for turning.

Arch Capital, for example, announced first-quarter post-tax operating income of $422m, compared to $239.8m in the same period of last year. Pre-tax current accident year catastrophic losses were $85.8m including losses associated with Russia’s invasion of Ukraine, said the group.

Gross premiums written by the insurance segment in the first quarter were 21.5% higher than in Q1 2021, while net premiums written were 21.3% higher.

“The higher level of net premiums written reflected increases in most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts. Net premiums earned in the 2022 first quarter were 25.3% higher than in the 2021 first quarter, and reflect changes in net premiums written over the previous five quarters,” said Arch, dashing any ideas that the softening is already underway.

The group added that its first-quarter loss ratio reflected 3.1 points of current year catastrophic activity, “primarily” related to Russia’s invasion of Ukraine and natural catastrophes.

AXIS Capital reported net income of $142m, compared to $116m for the same period last year. Operating income was $180m, compared to $83m for the first quarter of 2021.

Gross premiums written increased by $224m, or 20%. AXIS said that was primarily attributable to increases in professional, liability and property lines, driven by new business and “favourable” rate changes.

Albert Benchimol, president and CEO of AXIS Capital, said: “Our insurance segment again recorded 20% premium growth on the back of double-digit rate increases and record first-quarter new business, as we continued to expand our presence in attractive markets, with a focus on delivering value to our partners in the E&S, wholesale and specialty channels. We’re excited by the positive momentum that we continue to see throughout our business.”

Again, not so encouraging words for risk managers looking for relief in a difficult period.

Everest Re also reported strong growth in its insurance business on the back of the firm market, despite tough actions to reduce its exposure to riskier accounts.

The group reported gross written premiums of $1bn in its insurance business, reflecting a 15% increase driven by “balanced and diversified” growth across core classes and geographies.

“This growth was offset by intentional underwriting actions to reduce exposure in property cat and targeted accounts that did not meet our risk-adjusted return thresholds. Excluding these actions, growth was 25%,” said Everest.

This underlines how carriers appear to be still managing to post impressive growth without apparently compromising underwriting discipline.

Everest reported “excellent” profitability with a 91.9% combined ratio and 90.9% attritional combined ratio, a 1.3-point improvement compared to the first quarter of 2021. “Rate increases remain solid and above loss trend,” said the group.

Group president and CEO Juan Andrade hinted at the need for continued discipline in the face of global political, economic and financial volatility.

“Our discipline, strength and resilience stand out in the increasingly volatile external environment, which is compounded by a web of macroeconomic, geopolitical and societal issues. As underwriters, the protection and stability we provide has never been more important, and we continue to be a source of strength in the face of global uncertainty,” he said.

Lancashire Holdings reported in its first-quarter trading statement that gross premiums written increased by 34.7% year on year to $477.9m. Its group renewal price index (RPI) stood at 106%.

The growth in Lancashire’s P&C insurance segment was primarily driven by the continued buildout of its direct and facultative property book of business, as well as new business in property political risk and property construction classes, said the group.

Growth in marine was driven by a combination of new business, the renewal of a large multi-year contract and the marine liability class of business having a very strong RPI, it added.

Lancashire’s net loss estimates from Ukraine are in the range of $20m to $30m.

Alex Maloney, group chief executive officer, commented: “This continues to be a complex and evolving situation, and we will give an update at the announcement of our half-year results in July. While we continue to analyse our potential exposure scenarios in Russia, we consider that any potential losses would be within our risk tolerances and would not impact our ability to deliver on our ambitious growth plans for 2022.

“Against this backdrop, underlying trading conditions remain favourable and Lancashire has continued to deliver strong premium growth in the first quarter, with a 34.7% increase in gross premiums written year on year. In light of the potential for broader market dislocation, we remain confident that our strong balance sheet, robust capital position and talented underwriting teams will give us further opportunities for profitable growth during 2022,” he added.

This is a telling statement from Maloney. Our reporting on insurer and reinsurer results during the last couple of years has focused chiefly on how uncertainty surrounding Covid-19 has bolstered the hard market.

Russia’s invasion of Ukraine and all the political, economic and financial implications this brings appear to have seamlessly replaced that crisis with a new one, and it looks like risk and insurance managers worldwide will have wait a bit longer for the softening that will hopefully occur at some point.

The mood at the Monte Carlo Rendezvous in early September, when the global reinsurance industry has the first chance in a couple of years to set out its position in person, will be fascinating to observe and will help set the scene for the next phase in this cycle.