QBE Re’s Killourhy: Attachment point is “more important” than rate

Speaking exclusively with The Insurer TV, QBE Re managing director Chris Killourhy said recent renewals had seen a “change in philosophy” for reinsurers, noting that attachment points and avoiding secondary perils have been more important than rate, with much of the same expected at 1.1.2024.

The executive added that attachment point was something “we understand, can model, can diversify and build portfolios around”.

The head of QBE’s reinsurance arm noted that reinsurers are more relationship-focused nowadays than at recent renewals, “[the] flight to quality is continuing, and we’ll be much more cedant-by-cedant focused”.

“For us, it doesn't matter how much rates move,” he said. “I think we've got to maintain our discipline so that we don't start getting back down to the weeds and playing in areas that we just don't feel are the right way for us to deploy capacity.”

When it comes to casualty, the executive warned of the continuing peril of inflation.

“We’re very focused on inflation,” he noted, adding that “we're looking at risk now with a lot more focus on to what extent is inflation impacting those primary losses”.

“I think it [inflation] is making the reinsurance industry a little bit more thoughtful on how it’s managing its casualty portfolio,” he added.

Focus on the cedant

One area for increased concern has been the D&O market – particularly public D&O – and is something that is also under the microscope at QBE Re, as well as in other parts of the market.

During his Q3 market message, Lloyd’s chief of markets Patrick Tiernan reserved his most severe criticism for the D&O market, which he described as being in a “shambolic state” characterised by a “litany of irrational underwriting behaviours”.

“We are all running out of adjectives to describe the moronic underwriting approach being adopted by some elements of the market,” he said.

Having previously voiced concerns in June around the “irresponsible giving-away of rate” – with some instances of risk-adjusted rate decreases of 20 percent – Tiernan said Lloyd’s had since discovered trends were worse than first thought.

“I think he was right to call it out,” said Killourhy. “Public D&O rates are sort of back close to where they were in 2019, which means that all the correction and strengthening that has been done over the years, it's kind of been unwound within 12 months. That would be like us sort of going back to rates a couple of years ago on the property side of this renewal. So, I think it's a real concern, ” he added.

However, Killourhy affirmed QBE Re’s commitment to support their partners in the long term, even against this backdrop.

He explained that his aim is to be more meaningful to a smaller number of cedants rather than focusing purely on specific lines.

“We're seeing evidence [from cedants] that they're looking at the rates, they're seeing the same concerns that we are, and we're just getting off the business when it doesn't make sense,” he said.

“The cedants that have got real balance in their portfolio can afford to come off some business, because they've got enough income elsewhere. But what we're seeing on public D&O rates, I think, as a reinsurer, you've got to be really concerned to see that level of fall-down.”

Turning the discussion to specialty business, he said it was a “fascinating area”.

“There's actually a bit of overlap between specialty and property. With property, one of the concerns that I saw was more than just are we getting the premium right. Do we actually know what we're covering? Do we know what perils are exposed to? Do we really understand our accumulation?

“And I think that was, in some ways, where we were on the specialty side as an industry as well, with more and more covers being cobbled together. We were discovering we're on risk for things that we didn't really intend to or we hadn't charged for. So, I think, clearly as markets left last year, it created an opportunity for rates to move.”

However, he added that, “we didn’t run into the market,” but that the departure of certain reinsurers had created an opportunity to support cedants in the specialty market.

“More important than the rate was the decoupling of some of the covers, getting real clarity on what we're protecting,” adding “I think that bit of discipline will remain.”

QBE Re’s portfolio covers an extensive range of products including, but not limited to, marine, energy, aviation, WTPV and contingency.

The executive was less forthcoming on exactly which specialty classes of business they’re focusing on moving forward.

“We're really trying to move ourselves towards being a cedant-led reinsurer, so we are becoming a lot less focused on which segments we want to get in,” he said.

He noted that jumping into lines based on rate had “served QBE Re well, for a long time,” but added that this was not necessarily right for sustainable growth.

“We're moving our approach to being less, "When do I jump into aviation war? When do I grow my marine book?" And more to, "Where is the opportunity to grow with a cedant?"

One decision which the executive stood by was QBE Re’s exit from retro ahead of last year’s 1.1 renewals, noting that “we didn’t see the attractiveness” and that the “level of volatility wasn’t going to make sense”.

Bermuda tax risks

As someone who spent a number of years working in Bermuda, Killourhy was thoughtful about the prospective introduction of a minimum corporate tax rate in Bermuda – although he did not see it as systemic for the industry there.

“I think that Bermuda will continue to be an attractive place to do business. And I think that the attractiveness of Bermuda always went way beyond the taxation position.”

The executive noted that while there is uncertainty, benefits include the Bermudian regulator, which is a huge advantage for the market, noting that having, “the ability to have proper conversations with them makes it a helpful regime that can really understand the business that you're in”.

The executive also highlighted the talent on the island, especially in the property cat space, as well as its abundance of brokers.

“It will continue to be a promising market for some time,” he concluded.

Watch the 18-minute video interview with Chris Killourhy for more insights on his ambitions for QBE Re.