Month: January 2024

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The Bermuda Monetary Authority (BMA) has laid out its plans for 2024, with Chief Executive Officer (CEO) Craig Swan highlighting specific opportunities in parametric risk transfer for climate insurance.

craig-swan-ceo-bermuda-monetary-authority-bmaThe 2024 business plan of Bermuda’s financial regulator contains a focus on “initiatives and projects to achieve positive outcomes and strengthen Bermuda’s regulatory framework for the upcoming year.”

Of relevance to the insurance, reinsurance and insurance-linked securities (ILS) community, the Bermuda Monetary Authority (BMA) expects to continue to work on enhancing its regulatory and supervisory regimes to meet the evolving needs of financial service companies today.

There will be further work on the Insurance Code of Conduct, “to uphold the importance of financial transparency, consumer protection and education initiatives,” the BMA explains.

While an Environmental, Social and Governance (ESG) model and a Sustainability Strategy are also key initiatives and here there are relevant items to look out for, for this industry.

BMA CEO Craig Swan said, “The Authority’s strategy is underpinned by deep expertise and cross-functional viewpoints designed to champion innovation. This plan’s many thoughtfully curated objectives will optimise excellence while simultaneously preparing the organisation to meet and address emerging challenges that impact the regulatory environment. In a continually fluctuating business climate, this approach enables the BMA to open new pathways for enhancing our abilities and innovative practices today and for many years to come.”

Swan also commented, “The pace of innovation is challenging organisations to remain agile and adapt how they work to meet the ebb and flow of their markets. From artificial intelligence and automation to decentralised finance and insurance-linked securities, the financial services industry has evolved markedly over the last few decades with increasingly transformative leaps forward each successive year.

“As firms confront issues such as inflationary pressures, relentless consumer demands, volatility in the commodity markets and extreme climate patterns, they are building systems to redefine and reimagine their future aspirations.”

The BMA intends to explore working with investment funds to “set up a new framework that facilitates the ability to designate certain Bermuda funds as ESG compliant,” Swan said.

This could be an interesting initiative for ILS managers, given there are plenty of ILS fund structures domiciled in Bermuda that could find an ESG framework appealing to look into.

The BMA also intends to prepare a consultation paper on a new climate risk disclosure framework for Bermuda commercial (re)insurers, Swan also explained.

But, perhaps most compelling in the current environment and in terms of opportunity, the BMA also intends to work in 2024 on “reviewing and, where applicable, updating other (re)insurance frameworks to better facilitate parametric climate-related insurance products.”

Bermuda has always considered itself as the world’s climate risk capital market and given the proliferation of catastrophe, weather and climate focused underwriting expertise in the islands insurers, reinsurers and of course ILS fund managers, there is clearly a wealth of experience and relevant knowledge, as well as ongoing business there.

If Bermuda can make its regulatory and supervisory regime even more relevant to underwriters of parametric climate risk insurance and reinsurance opportunities, while also finding ways to tap into the ILS market expertise on the island, the opportunity to attract and deploy climate risk capital out of the market there seems a worthwhile achievable goal.

The BMA has always followed a forward-thinking agenda and this year’s business plan again highlights the regulators’ ability to focus on emerging trends that can be drivers of future profit for Bermuda’s financial market and its participants.

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A few signs emerged at the recent January 1st 2024 reinsurance renewals that bode well for protection buyers as we move through this year and into the next, as broker Aon highlighted that appetite is returning for some of the more challenged products and areas of the tower.

reinsurance-program-designOver the last couple of years appetite to underwrite aggregate reinsurance or retrocession and lower layers of towers, had dried up in many cases, as reinsurers shied away from the business that had driven so many losses to them in the years prior.

But certain factors are beginning to drive more appetite to support insurer and protection buyer demand for cover, in aggregate form or lower down.

Aon’s Reinsurance Solutions team recently highlighted that one of the factors driving more appetite for these risks is the fact many reinsurers remain keen to grow, but the growth opportunity higher-up may now be less available, or facing more competition and a slight softening of prices.

Joe Monaghan, Global Growth Leader at Aon’s Reinsurance Solutions said that, at the January renewals, “Some reinsurers were also more flexible in more challenging areas, such as peril-specific lower layers and aggregate covers, particularly where insurers were able to offer potentially profitable participations elsewhere.”

By supporting cedents needs, reinsurers are able to secure better shares higher-up, is a common feature of a reinsurance market that is now stabilising and where capital has been less of a challenge to secure.

As well as leverage, using the aggregate and lower layers as a way to elicit more share of the most attractive layers, there are also reinsurers that believe the market has reset considerably, with much higher pricing and updated terms making some of these previously more challenges areas of the catastrophe reinsurance tower appealing again.

“Following the resetting of the property market and much improved results in 2023, many reinsurers are now keen to grow. As a result, some reinsurers were more accommodating at the renewal when it came to meeting the needs of individual insurers in more challenging areas, such peril specific lower layers and aggregate covers, as well as reinstating certain terms and conditions,” Aon’s Reinsurance Solutions team explained in more detail.

They added, “The increases in deductible levels a year ago have helped mitigate reinsurer losses, and reinforced necessary changes in the insurance value chain that should ultimately result in a much healthier and more sustainable market.

“In the meantime, reinsurers that want to grow in the segment should look to support insurers with flexibility in lower layers, aggregate covers and structured solutions.”

At the 1/1 2024 renewals most reinsurers went into negotiations with a desire to grow in property catastrophe reinsurance, Aon explained.

This gave insurers the ability to use their upper-layers and specialty portfolios as ways to attract reinsurer support for lower catastrophe layers and frequency coverage.

Aon said that the reinsurers that were most supportive at renewals in 2023, have benefited most from these market dynamics in 2024.

Aggregate covers are now “back on the table” Aon believes, with the reinsurance broker saying that more reinsurers are willing to consider them, at the right price and terms, in 2024.

Aon has called before for the market to innovate to narrow the reinsurance protection gaps that had emerged, when it comes to secondary perils and frequency exposures.

As we also reported, model confidence had been a driver of lower certainty in the ability to predict secondary perils and we asked whether the pendulum may have swung too far on catastrophe risk retention as well.

Aon’s Joe Monaghan again highlighted the broker’s concerns over whether the reinsurance market has retrenched too far, away from frequency and secondary perils.

He said, “As capacity continues to build, there will be opportunities for insurers to buy additional limit at the top of programs, and for reinsurers to work with brokers and clients to share the burden of secondary perils more equitably.”

Monaghan believes the industry must work to restore more of a risk-sharing balance, “The increases in retentions a year ago have mitigated reinsurer losses and contributed to their positive returns in 2023. But this has come at the expense of increased retained losses for insurers many of whom are struggling to achieve the improvements in primary pricing and underwriting which are often slowed by regulatory approval process quickly enough given their limited sources of capital to sustain increased catastrophes.

“We must work collectively to create the solutions necessary to sustain re/insurance symbiosis.”

Through greater participation in appropriately structured and designed aggregate covers, as well as lower-layers and finding ways to support secondary peril coverage, while also working to enhance risk models for these exposures, the reinsurance market can rebuild a way back into the critical areas of towers.

But, it does need to happen in an equitable way, where the rates paid by cedents are risk commensurate and the proportion of risk retained to ceded does not shift dramatically back to how it was around five to ten years ago, at the height (low) of the last soft market.

Read all of our reinsurance renewal news coverage.

Aggregate reinsurance back on the table, lower layers see more support: Aon was published by:
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The capital raise for the 2024 underwriting year for London headquartered specialty insurance and reinsurance firm Beazley’s third-party capital backed Smart Tracker syndicate 5623 was “heavily oversubscribed” and the structure remains on-track to deliver a fourth consecutive year of underwriting profits to backers.

beazley-logo-new-nov2022This is according to Will Roscoe, Head of Portfolio Underwriting at Beazley, and the Active Underwriter for the firm’s Smart Tracker Syndicate 5623 and its ESG Syndicate 4321.

Roscoe was reflecting on a strong 2023 for the Beazley Portfolio Underwriting team he runs and looking ahead to 2024 in a post on Linkedin.

He explained that, “The Beazley Smart Tracker syndicate 5623 has delivered its 2023 business plan having underwritten $425m Gross Written Premium.”

Further stating that, “We are on track to return a fourth straight underwriting profit to our investors when we announce our 2021 year of account result next year.”

The third-party capital backed Smart Tracker is one of Beazley’s underwriting structures at Lloyd’s that attracts a diverse range of institutional investor capital.

It is considered akin to an insurance-linked strategy, attracting some well-known pension investors that allocate to insurance-linked securities (ILS).

The Smart Tracker both augments Beazley’s underwriting capacity in the market, while also enabling it to earn fee-like income and offer low-cost risk capital to clients.

The newer ESG Syndicate 4321 is also popular with third-party capital and delivers similar benefits to Beazley, while also providing a home for underwriting capital that targets ESG aligned opportunities.

Roscoe highlighted the demand from investors for the strategies, saying, “Our capital raise for the 2024 underwriting year of account was heavily oversubscribed, reflecting the strong demand we have seen from our third-party capital investors.”

He also highlighted that his team has launched additional underwriting facilities, saying, “We are proud to be leading the London market’s Smart Follow underwriting strategy.”

Beazley has ambitions to continue growing out the Smart Tracker and related facilities.

Roscoe said, “Looking ahead to 2024 we are poised to deliver further growth, with an ambitious plan to underwrite $525m in premium, taking advantage of continued excellent market conditions.”

The Smart Tracker has proved a popular structure for investors looking to participate in the returns of the Lloyd’s market, as it follows a curated approach to tracking and following the performance of some of the best underwriters.

Beazley Smart Tracker capital raise “heavily oversubscribed” for 2024: Roscoe was published by:
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