MS Re’s Wiest: Cat capacity is being eroded by inflation

Reinsurance firms on the whole will have the same nominal catastrophe capacity as last year – but half of it is being eaten away by inflation, according to MS Reinsurance CEO Robert Wiest.

Wiest argued that inflation remains an important topic for the insurance industry, with its impact yet to be fully determined. But while most firms do appear to be pricing in inflation this year, he told The Insurer TV in Monte Carlo last week that because there is not much new capital coming in to bolster cat capacity, what is available is susceptible to further erosion from inflation.

“We are talking broadly about the same capacity as last year. But now, half of that capacity is going to be eaten away by inflation rises. Without new capital coming in, the actual cat capacity for new business is constrained,” he said.

Wiest described this as one of “the most pressing factors” discussed at the Monte Carlo Rendez-Vous this year.

“The big questions I have there are: how much can be paid? How much is the market able to give? Or, more broadly, [to what extent] is the system of insurance able to build in price increases?”

He added that some companies adjusted their prices when inflation rates soared, but even these haven’t yet “addressed it fully”.

At 1.1.23, Wiest said there was a “jam” in the system, as companies couldn't commit to providing cat capacity because they didn't have the commitment from the retro market.

He said: “It became quite evident that the... cat capacity offering is a daisy chain. And naturally, [that capacity] seems to want to sit with the people who are making the decisions.

“This year, there will be a challenge around people asking, ‘Is that your own capacity or do you have to rely on five other sources’ just to get a better, clearer picture. There will be more discussions to understand what kind of partner is really sitting on the other side of the table.”

MS Re’s position on property cat is to maintain its commitment and look to expand if pricing levels remain the same or, indeed, push up some more.

“We will expand on cat capacity,” Wiest said. “There's demand for it and the price levels are better. I'm hesitant to say they're good, because it’s been a very busy year on the cat side.”

Wiest also spoke about other classes of business in MS Re’s portfolio, and pointed to aviation as an area that’s looking increasingly attractive.

He said the aviation market “pricing-wise, as [in] most of the market, has improved”.

He added: “Some of the situations are definitely clearer. Aviation was never a large part of our portfolio in the past, so we don't have a legacy challenge. Going forward we are definitely looking at it.”

MS Re has a sizeable book of agriculture reinsurance, although global warming has made the market “more challenging and more interesting”.

“We see all the challenges coming in from climate change,” he said “What we are quite successful in doing is combining market demand with the tools we already have available, which allows us to frame the exposure in a way that it fits our risk appetite.”

Luxury problems

At last year’s Monte Carlo reinsurance Rendez-Vous, MS Amlin AG rebranded to MS Reinsurance to cement its identity as a pure-play reinsurer.

A year on and Wiest said the strategy is “working very well” and that he now faces what he defines as a “luxury problem”.

“The challenge we have is more of an internal one right now. The rebranding seems to have been so successful, that the business build is going up faster than the internal restructuring setup. So our organisation, in a positive way, is a bit under pressure.

“But it's been a tremendous year and we’ve had huge engagement from our people as well. The work to manage our internal setup will persist for another year, and once that’s done we’ll be able to do so much more and realise much more of our potential,” he said.

Watch the 10-minute interview with MS Re’s Robert Wiest to hear his thoughts on how:

  • Inflation is eating away at catastrophe capacity, with nominal levels remaining the same as last year while real capacity dwindles
  • Inflation must remain a priority for reinsurers, particularly those which are still yet to address it fully
  • Improvements in the aviation are making the market look more attractive
  • Life has changed at MS Re post-rebrand