Ark’s Beaton calls on reinsurers not to abandon discipline because of “one good year”

As reinsurers prepare to converge on Monte Carlo for the traditional curtain raiser to 1 January renewal negotiations, Ark CEO Ian Beaton has called on underwriters to maintain discipline in the face of pressure from brokers to push harder on pricing.

“Just because you had one good year, it doesn't mean you can go and blow it,” Beaton told an audience of more than 300 executives at The Insurer’s Pre-Monte Carlo Forum this morning.

Beaton flagged continued challenges in US casualty reinsurance as a particular concern. He said the market was wrong to think that the under-reserving issues were unique to the 2014 to 2019 accident years, adding that continued work is required.

“People pretend the 2014 to 2019 accident years are the only years that have gone wrong. I don't see that what's happened between those accident years and subsequent years will make it a good enough market,” he said, adding that as an industry “we're still losing money in this market”.

Beaton – a co-founder of the Lloyd’s-Bermuda (re)insurer – also said components of the London market and the wider industry appear to collectively suffer from a “cognitive bias” where a lack of knowledge and skill in a certain area causes a person to overestimate their own competence. Also known as the Dunning-Kruger effect, it means in effect underwriters fail to recognise areas of weakness which in the aggregate can lead to reckless pricing and risk decisions.

“The issue here is one of discipline,” he explained.

He added that in his experience, top-quartile Lloyd’s syndicates tend to be more pessimistic about internal performance while the lower quartiles appear to be progressively more optimistic versus actual outcomes.

“It's not just simply that we are over-optimistic. We are progressively worse in our estimation of how we're doing, of how we’re performing,” he said.

This is holding the industry back from tackling core issues and preventing underwriters from catching problematic trends in any given line of business – such as casualty – before they become endemic.

“What this means is that when we are overly optimistic, it is the bottom quartile that is going to be the last to recognise that things have gone wrong in any given line of business,” he said.

The Lloyd’s and Bermuda (re)insurer operates at Lloyd’s via its flagship Syndicate 3902 and smaller Syndicate 4020, which collectively manage a broad portfolio of insurance and reinsurance, including property, marine and energy, accident and health, aviation and specialty.

Syndicate 3902 and 4020 are serial outperformers within the Lloyd’s market.

White Mountains-backed Ark – which also includes Bermudian reinsurer Group Ark Insurance Ltd – in August posted a 19 percent jump in pre-tax profits to $50mn for the second quarter.

The (re)insurer also reported a combined ratio that was flat at 89 percent and GWP that climbed 15 percent to $697mn.

The Rendez-Vous, which begins on Sunday, is taking place against the backdrop of a calm Atlantic hurricane season – in defiance of predictions – which if it continues will be a major fillip to the industry’s H2 earnings.