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RenRe CEO: Waiting for next hard market to materialize unrealistic

Written by Jasir Jawaid

RenaissanceRe Holdings Ltd. President and CEO Kevin O'Donnell, speaking on an earnings call Feb. 3, noted that rates on the U.S. property side were down at Jan. 1.

In some programs, the company could not offer material terms, while in others, it could not continue its support. But RenRe maintained discipline, he said, and exited business that did not make sense.

He also noted "increased competition" in the ceded and assumed retro markets, which he called "as undisciplined and competitive market as we've ever seen." In response, the company increased its ceded retro purchases "significantly" and decreased its assumed retro portfolio by about 40%.

The magnitude of price reductions in international property was surprising as margins for the business started out significantly lower than comparable U.S. margins.

"Continued rate reductions make much of this market unattractive. Underwriting standards are now at the lowest level seen for some time," O'Donnell said.

In the retro market, RenRe decided to shrink its Upsilon fund to one-quarter the size it was two years ago given the increasingly inadequate returns it offered.

The casualty and specialty business was a "bright spot" in the company's overall portfolio in 2015. It was able to grow this book of business significantly with written premiums up 121% year over year.

"We are in a new world where simply waiting for the next hard market to materialize is not realistic. It ignores the way risk is being transferred with attractive risks increasingly having its choice of attractively priced capital in both hard market and soft," O'Donnell said.

He also had harsh words for those in the practice of cross-cycle underwriting, which, as he put it, is a justification for writing business at an expected loss and hoping to make it up when the cycle turns.

While this may have played out favorably in the past, O'Donnell noted that poor underwriting catches up "often quicker than you think it will."

This article was published by S&P Global Market Intelligence on the S&P Capital IQ Pro platform.


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