Setting the scene: Howden Tiger’s Ronda and Bredahl on this year’s key RVS talking points
Reinsurers’ push to deliver a return above their cost of capital and the implications of this for property cat rates will be among the key drivers of conversations at the upcoming Monte Carlo Rendez-Vous, according to reinsurance broker Howden Tiger.
In an exclusive interview with The Insurer TV at the broker’s New York office, Howden Tiger’s president Tim Ronda and CEO Rob Bredahl highlighted the key topics they believe will dominate discussions as the industry gathers on the Côte d’Azur.
Bredahl said a key focus will be the spike in property cat rates at recent renewals.
“For the past several years reinsurers generally have not covered their cost of capital,” he said. “As a result, we've seen this major, very dramatic spike, at least in property cat rates. And so, has it been enough? Or perhaps some people will ask, is it excessive? Will there be outsized returns going forward?
“There's no way of escaping that discussion,” Bredahl told The Insurer TV.
“Reinsurance may have a return higher than cost of capital, and I think that is a good indicator that we might be in an equilibrium stage,” added Ronda.
Recent analysis from Howden Tiger found that reinsurance returns are on track to exceed the industry’s cost of capital this year for the first time since the current pricing cycle began.
This is in part due to the general upward shift in attachment points at recent renewals, leaving primary carriers with higher retentions.
Both Bredahl and Ronda agree that inflation concerns will also be on the table at the Rendez-Vous, especially in the context of considering the leverage impact when it comes to reserves.
“I think the average reinsurance company has a 2.5 reserve-to-equity ratio. So, small increases in loss caused by inflation can have a big impact on returns,” said Bredahl.
Additionally, Bredahl and Ronda expect the lack of start-up reinsurers at this point in the cycle to come up for review.
“If you look back at the last three or four cycles that I've participated in, there was a number of start-up rated reinsurers, and in some years, there were five, six, or seven reinsurers. This time around, there's almost none,” said Bredahl.
Performance in the last couple of cycles has caused investors to push back on rated reinsurers.
“The exits haven't been great,” said Bredahl.
Other topics of discussion are likely to include the recent challenges facing Vesttoo as well as the fast-paced movement of talent across the industry, in what has become an ultra-competitive marketplace.
“I wouldn't be surprised if other than talking about market conditions, some of the senior executives were talking about talent and succession planning, and making sure that the industry was bringing in top-notch talent in a diverse way, so that business can continue to thrive 10, 20, 30 years from now,” said Ronda.
“We love the MGA and fronting space”
Since completion of Howden’s purchase of TigerRisk, the combined firm has an increasing stake in the MGA, program and fronting space, with the strong reinsurance appetite driving growth, especially considering reinsurance market movements over the past 12 months.
“We love the MGA space. We love the fronting space. And we believe that capital-light models are here to stay and have a great role in the market for the foreseeable future,” said Ronda.
“There's $6bn of gross written premium that flows through Howden Tiger into the insurance and reinsurance world that's MGA-driven. Like any business, there are some high performers and there are some less-than-satisfactory performers. And what we saw 12 months ago was some people predicting great trouble for the MGA space. But we actually found a lot of our clients thriving.”
The pair attribute Howden Tiger’s success in the space to an entrepreneurial spirit that permeates the combined firm. Both also see distinct differences between being an MGA versus being in a balance sheet.
“Working for a balance sheet is a great thing. It's a great career. Some people reach a point where they want to be a little bit more entrepreneurial, maybe be a part owner, or be a part of a small, private business. What we think about it is, if you have a specialisation, if you have an expertise, and you want to be entrepreneurial, we always want there to be a platform for that to be successful,” said Ronda.
“We've seen some MGAs or some fronting carriers struggle, and we've seen others really thrive on this market opportunity. And actually, we're more convinced than ever that as we go forward, this is a part of our market in a segment where there's value added for it, and we're going to continue to see interest,” added Ronda.
Howden-Tiger deal playing out
Both Ronda and Bredahl believe the Howden-Tiger deal, which completed in January this year, has “played out” as expected.
“The investment thesis when Howden bought Tiger was pretty simple,” said Bredahl. If we combine and round out the product set, together we'll do much better. And that's played out.
“New businesses are coming in. We have a record number of RFPs right now. And where it's really working well is attracting talent,” he said.
Ronda added: “In my career, I've been a part of a bunch of different mergers and acquisitions. And this one's a little bit unique. I think culture is the thing that defines us most and will be most predictive of our success in the future.”