Hiscox Re’s Wilken: Reinsurers must continue to rein in peril scope and maintain discipline

The retrocession market’s tightness in coming months will depend on how many losses occur before year’s end, Hiscox Re & ILS CUO Matthew Wilken told The Insurer TV.

Commenting from the sidelines of the annual industry Rendez-Vous in Monte Carlo, Wilken remained cautiously optimistic:

“But let's just assume for the time being that it's a median or better-than-median year. We ended the year with retro capacity still being a valuable commodity. And I still continue to think it will be a valuable commodity.”

Wilken added that the 1.1.2023 reduction in peril scope reflected the needs of the tail-end exposure.

“I think that there will continue to be a desire from reinsurers to ensure that the peril scope is limited. I can't see it naturally reverting on retro to an all-peril straight away,” he said.

The Insurer has reported that sources point to a hard but stable retro market at 1.1.2024, a view shared by Wilken, who added that continued discipline in peril scope will likely influence the market going forward into 2024.

“But I'm also cognisant that there becomes a gap between what's being offered on the front end covers and what's being protected by retro,” he added.

Cat bond competition may absorb customer appetite required for the retro market

Wilken also noted the retro market’s increasing competition from catastrophe bonds – for example, Hiscox Re & ILS has seen an increasing growth in the number of bonds being issued for the year to date.

And while cat bonds may present a slightly different flavour of competition, Wilken said on the whole they offer only very limited cover for a limited variety of perils.

“That's an interesting dynamic. Customers potentially are comparing one against the other, and that cat bond may absorb some of the appetite that is required by the retro market,” said Wilken.

Wilken acknowledged that ILS investors are currently faced with a myriad of political, socio-economic and macroeconomic challenges.

As for potential new third-party capital entering the market, Wilken said the industry needs to deliver if it is to take advantage of the opportunity, especially with risk-free returns in the mid-single digits, and a scarcity of new capital flowing in.

“The reality is that I think if I was a third-party capital investor sitting on the sidelines waiting, the first thing I'd say is: ‘Demonstrably show me that you've made the returns that have been promised, because they haven't been there for the past, say, three or four years.’”

He added: “The opportunity is there to make that happen, but the industry needs to deliver.”

“We've been pursuing a lot of potential new third-party capital, and we’ve spoken to many of them. There's a lot of interest. And there's no doubt that some of it will engage,” said Wilken. “But the reality is, we do need to encourage it, and have those results.”

Watch the 10-minute video with Hiscox Re and ILS’s Matthew Wilken to hear more on:

  • Peril scope, a differentiating factor in 2023, must remain limited
  • Cat bond growth may absorb some of the appetite required by the retro market in 2024
  • Over $1bn business just for Hiscox Re – made up solely of short- and medium-tail lines
  • Eager to build specialty classes, due to great improvements in terms and conditions
  • New third party capital will demand sustained profits that were promised by the industry