A sizable supply and demand gap lingers and pent-up demand from cedents continues to grow, which could result in terms and conditions remaining tight, said Everest Group President and Chief Executive Officer Juan Andrade. He spoke with AM Best TV at Rendez-Vous de Septembre in Monte Carlo.
Q: We’re hearing particularly about the availability of reinsurance capital. What can we expect from the forthcoming renewals?
A: Look, from the perspective of the market, nothing much has changed since the Jan. 1 renewals of 2023. There’s still a sizable gap between supply and demand that has not been closed. As a matter of fact, we continue to see more pent‑up demand from our cedents, from our customers.
I think as a result of that, you are going to continue to see pricing going up, attachment points stay where they are, or maybe even higher, and terms and conditions to remain tight.
Q: There was some talk at the 2023 1/1 renewals of a disorderly renewal. Is that going to continue?
A: I think this renewal is going to be more orderly, simply because people now understand expectations. Discussions have been having well ahead of the renewal. The difference to the 1/1 of 2023 is the market changed dramatically quick.
When we were here a year ago, the discussions were a bit different. Then, two weeks later, Hurricane Ian hits on Sept. 28, and then it was a very changing market at that point. That led to a more dislocated renewal.
I would expect that this renewal will be a bit more orderly, but as I said, I think pricing will still continue to be up, attachment points will be up, and terms and conditions will remain tight.
Q: How have the expectations of the reinsurance buyers changed?
A: The expectations are exactly what I just described. The conversations that I have with cedent CEOs and their buying teams, they recognize the environment. They recognize that the natural catastrophe environment has not fundamentally changed.
We’re already $60 billion in industry loss in the first six months, and this has been a very active quarter. We have Maui wildfires. We have wildfires in Canada. We have the earthquake in Morocco. We have a number of other things, all the hurricanes that are out there churning into the Atlantic Ocean right now.
They definitely understand that. They also understand the heightened risk environment that we continue to live. It’s frankly one of the reasons why there’s more pent‑up demand for reinsurance right now. We’re in a very stable environment from the perspective of expectations.
Q: A number of those events that you discussed there seem to have less insurance penetration perhaps. Is there something that the reinsurance industry can do to perhaps close that protection gap a little bit?
A: That’s ultimately when you look at economic loss versus insured industry loss, there’s always such a sizable gap. It does depend on the geography, the demographics, frankly the GDP of a particular country.
Our job is to provide protection as an industry, and we should be able to do everything that we can do to make sure that people are protected in the event of these events.
Q: Is there more that the reinsurance industry can do to make sure it’s serving the needs of its clients?
A: Absolutely, and we’re doing it right. We are deploying capital, now, albeit at higher pricing and different terms and conditions and attachments, but we have been deploying capital.
One thing that’s important for your viewers to remember is that it’s our capital in this industry that restores economies, and countries, and peoples back to normal life. It’s not the government. That’s the role that we play.
Q: To back you up, what’s the attitude of investors to the reinsurance sector at the moment?
A: The investors are very positive. We just went through an equity capital raise earlier this year in May, and the support for that was phenomenal. The reason is they know that right now, in reinsurance, you have companies like ours with very good risk‑adjusted returns.
We just generated a return on equity of over 22% in the second quarter and an annualized total shareholder return of over 25%. You can’t do that in many other industries right now.