Everest eyeing prop cat growth but retro appetite remains restrained

Everest sees opportunities to grow its global property catastrophe portfolio amid what reinsurance head Jim Williamson believes will still be a “very hard” market in 2024 as the factors that drove recent improvements remain, although the company’s appetite for retro business continues to be restrained.

Everest recorded property catastrophe rate rises north of 50 percent at the 1 January 2023 renewals, and although Williamson does not anticipate seeing similar price increases next year, he forecast further hardening.

“Reinsurance property prices need to stay hard, and they need to harden,” Williamson told The Insurer.

“The factors that drove the correction that we've experienced in 2023 haven't really changed.

“There’s still a dearth of available capital. It may have gotten better in the last six months, but I think there's still a challenge of capital availability.

“We're still in a very heightened risk environment – it seems like everything is on fire right now or getting flooded – and we've seen a significant amount of losses year to date.”

As Williamson noted, with much of those losses retained by primary carriers, demand for reinsurance coverage will rise.

Given that Everest Group completed a circa $1.5bn capital raise during Q2 2023, Williamson said the Bermudian (re)insurer “is in the enviable position of having dry powder” to take advantage of the expected further market improvement.

The hardening will take place around the world, with Williamson noting “there’s a global supply-demand imbalance” for property catastrophe capacity.

As he detailed, the factors fuelling Everest’s belief of the need for further property catastrophe improvements – climate change; building development patterns with more people living in areas prone to disasters; material inflation; and losses – are not just within the US.

“There’s a global need for property rates to go up,” he said, but conceded “there are going to be nuances by market”.

Some regions started the correction process earlier than others – for example Florida – while others are lagging and need to catch up, like Australia.

“Between the Canadian wildfires, all the storm activity in the US, the huge losses the primary market has been dealt in Hawaii, flooding in Europe – [the losses are] happening everywhere,” said Williamson.

“This is not a blip. Between climate change, building patterns, inflation – it's a recipe for sustained high loss activity.”

He added: “To me, $100bn-plus in annual cat losses is the new norm, and that has to get paid for.”

While Williamson believes pricing needs to continue to rise, he feels attachment points and terms and conditions are in a good place.

“Attachment points are kind of in the right spot, and terms and conditions have corrected massively.

“I think that the action now is all about how do you sustain price movement, given inflation, given climate change, given development patterns year after year after year, so that the market can function and be healthy?

“And that's why our view is we need to continue to push for price increases.”

Limited retro interest

While Everest has capital to deploy, the expectation is that it will be used to support primary carrier clients, rather than through retro.

“I've cut our retro participation in half each of the last years,” said Williamson.

“I cut it in half at the beginning of 2022, and cut it in half again at the beginning of 2023.

“I feel pretty good about the book we have now – it’s core client [focused] – and I'm not really looking to expand it. It does drive a lot of outsize volatility.

“We might do a little more, or a little less, but it's not something we're going to be moving into in any meaningful way,” Williamson stated.