Arch’s Grandisson on the view from the “penthouse”

Marc Grandisson, CEO of Arch Capital Group, has described the slight rate moderation in property cat as negligible and not a reason to rethink growing the business, using the analogy of being just “one floor down from the penthouse” but “still up in the air”.

Speaking to The Insurer TV on the sidelines of the Bermuda Risk Summit, Grandisson acknowledged that rates had come off slightly, but were still very good.

“People forget where we started from,” he said. “What I tell people is that last year we were in the penthouse of the building. Now we're on one floor below it, but we are still up in the air.”

Grandisson said Arch’s reinsurance arm was in a great position to make the most out of the current market conditions in the property cat, having managed its nat cat exposure more carefully during the soft market.

“We have less problems from the past, by virtue of our strategy, so it just puts us in a very, very amazing position, to be able to capitalise on this [market cycle],” he said.

Grandisson is also confident the industry's resolve won’t waver and that these conditions will last, dispelling criticism that reinsurers will return to old habits and compete on price.

“There is a conviction from the reinsurance industry that we cannot do what we did from 2017 to 2022 – we needed to clean our houses,” he said.

“I believe as an industry we underpriced and undercharged for the risks that we were taking on. That created a false sense of security for the buyers. But the reinsurance market right now is a bit different. There is really a willingness to say ‘no’, which wasn't there four or five years ago,” Grandisson added.

A byproduct of this has, of course, been that many insurers have had to take a different approach to reinsurance cover. As both a seller and a buyer of reinsurance, Grandisson said the new dynamics did not cause any issues for the group’s insurance arm. Instead, the focus became more about risk selection.

“It doesn't mean that you can't make money, it's quite the opposite,” he said. “It just means that as an insurer, you get to be a little bit more prescriptive and precise as to how you go about writing your business and building a portfolio.”

Casualty market needs to look back to the 80s

One of the main talking points during the Bermuda Risk Summit has been the challenges within the casualty market, with Everest’s Bermuda CEO Peter Bell stating that the firm will continue to selectively pull back from the segment, while others review their positions and focus on rate, reserves and ceding commissions.

According to Grandisson, inflation – both social and economic – is the main culprit behind many of the issues.

“What we're seeing is all these claims that were pre-pandemic, and some during the pandemic not being adjudicated. And if you overlay the inflation on top of that, this is where we're having a double whammy,” he said.

Grandisson, however, remained relatively bullish on Arch's outlook for the space

“Dealing with this and working out what the right approach is are all things we have in the toolbox. OK, we haven’t used these tools in a long time, but you just brush off the dust on the paper and the techniques, and it just comes back very, very naturally.

“When I became an actuary, they had to deal with all the inflation that we had in the late 70s and the 80s. So, there's nothing new. When I hear people say, 'oh, this is happening, how do we react to it?' All I will tell you is this, the industry has done this before, and is doing it again,” he said.

Incoming CIT

The Insurer TV spoke to Grandisson following his conference-opening “seaside chat” with Premier David Burt. Tax was high on the agenda during the discussion following the recent enactment of Bermuda’s new 15 percent corporate income tax, in alignment with the OECD tax regulations.

The historic tax change has stirred mixed reactions in the industry, with some speculation that it may prompt companies to rethink their position on the island.

But, as Grandisson said, tax is just one of the many reasons why Bermuda is a preferred domicile for many of the industry’s biggest players, adding that he has been reassured by the work being done to make the incoming tax imposition more palatable.

“The one thing I'm encouraged by and very comfortable with is that there's a very healthy and very, very constructive discussion between all the parties to make sure that it will be for the company's benefit, and for Bermuda's benefit,” he said.

“From my perspective, there's no need to do anything because there's more to be looked at and more to be reviewed. I think Bermuda being Bermuda, the government being what it is and the long history it has, I'm very confident things are going to be great.”

Watch the full 15-minute interview with Arch Capital Group CEO Marc Grandisson to hear more on:

  • How the Bermuda is making adjustment for the incoming CIT
  • Dynamics in property and casualty markets
  • The mortgage insurance market
  • Doubling down on the E&S market
  • What keeps him awake at night