3 Things – Connective Storms, New Re Vehicles & Earnings Week 1

Hi Friends!  Another week has gone by.  We hope everyone has survived Tax Day 2024 and had a good week as we roll on through April.  The week featured lots of news so we are here to bring you our weekly post ‘3 Things We Learned’ which brings together headlines from throughout insurance and ties everything together into significant themes that tell our story.  This week, earnings began and several insurers revealed their Q1 performance.  Meanwhile, many of the same ongoing themes continue along their paths.  There are opportunities to launch unique coverage options and new reinsurance vehicles to cover emerging risks.  Connective storms continue to be a peril that is driving large losses.  Carrier results show clues as to how catastrophe losses are year round events these days.  Let’s dive in and explore.

Large Losses Caused by Connective Storms

Gallagher Re’s latest Catastrophe & Climate report estimates that global insured losses from natural catastrophes in the first quarter of 2024 reached $20 billion, largely influenced by severe convective storms (SCS) in the US. Gallagher Re noted that the economic impact of non-peak perils like SCS and flooding has consistently surpassed that of peak perils such as cyclones and earthquakes over the past decade. The firm emphasized the need for continued preparedness and adaptation to manage the increasing risk of extreme weather due to climate change.

Allstate issued their usual results preview highlighting that first quarter total catastrophe losses were $731 million pre-tax. Allstate continues to implement rate increases for auto and homeowners insurance, leading to March premium impacts of 0.9% and 0.7%, respectively, with homeowners insurance gross written premiums up 11.9% year-over-year due to rate hikes and rising home replacement costs.

PURE Insurance provided 2023 results that saw its combined ratio improve to 102.2%, driven by enhanced underwriting guidelines, pricing improvements, and operational cost reductions. Despite this progress, the company acknowledged the need for further improvements to adequately cover escalating reinsurance costs, which rose over 40% last year.  CEO Martin Leitch indicated the year also witnessed significant catastrophe-related claims, including a devastating winter storm and the deadliest wildfire in Hawaii in over a century.

Ahead of an anticipated active 2024 Atlantic hurricane season, FloodFlash, an insurtech company known for its sensor-enabled parametric flood insurance, is introducing a new Business Interruption coverage product in the United States. The new offering is designed to help businesses manage the economic impact of flooding, leveraging the same parametric principles used in their existing flood insurance products.

New Reinsurance Vehicles, IPOs & Fleming / JRG Re Closes

Aspen Insurance Holdings Limited and PIMCO Investment Management Company LLC have launched Pando Re Ltd., a Bermuda-based collateralized reinsurer focused on casualty business. Aspen will serve as the exclusive cedant, while PIMCO will manage the investment portfolio, primarily consisting of investment-grade fixed income assets. Pando Re, backed by capital from a PIMCO-managed fund, will engage in Aspen’s various casualty and professional lines, including cyber insurance, through a multi-year quota share agreement. This strategic partnership aims to expand capacity in the casualty market, enhance third-party capital growth, and generate fee income for Aspen.

Hannover Re, in partnership with Parametrix, has launched the world’s first cloud outage catastrophe bond, Cumulus Re, valued at $13.75 million. The coverage is parametric, depending on specific service interruptions in designated U.S. cloud regions by at least one named provider, beyond a certain duration. This venture represents a strategic move to involve capital markets in managing systemic risks in the cyber insurance sector, highlighting the crucial role of substantial capital resources in sustaining the market’s growth.

Fleming Re completed the acquisition of James River Group’s reinsurance business after the court order last week compelled the deal to move forward.  Both parties seemed satisfied with the end results.  For Fleming, this acquisition is a key part of their growth strategy, providing them with additional infrastructure, a stronger capital base, and valuable industry relationships that are expected to enhance their service offerings and customer value.  James River Group is using this sale to focus more intently on its core U.S. insurance businesses, where it sees greater potential for growth and profitability.

Bowhead Specialty Holdings has announced its initial public offering (IPO) as it made its filing public, capitalizing on a recovering U.S. IPO market expected to rebound in 2024. The company, founded in 2020 and operating in the U.S. specialty and casualty insurance markets and an affiliate of American Family Insurance, plans to list on the New York Stock Exchange under the ticker “BOW.”

Earnings Week 1: Travelers, Marsh, Convex, Guy Carpenter

Travelers reported a 15% increase in net income to $1.12 billion for the first quarter, despite a rise in catastrophe losses primarily due to heightened activity in central and eastern states. Key executive insights revealed that Business Insurance and Personal Insurance sectors experienced robust growth, with net written premiums up 9% in Business Insurance and similar growth in Personal Insurance driven by strong pricing. However, Travelers remains cautious about the Florida homeowners market due to its high exposure to catastrophes and an unbalanced risk-reward profile, despite some improvements in the market conditions and recent tort reforms.  Additionally, the integration of Corvus Insurance Holdings Inc., which Travelers acquired at the start of the year, is progressing well, with positive feedback on the quality and profitability of the Corvus book of business.

Marsh McLennan is poised for strong growth amid economic and geopolitical challenges that are increasing the cost of risk. In the first quarter of 2024, the company reported a net income of $1.40 billion, up from $1.24 billion, and a revenue increase to $6.47 billion from $5.92 billion. Stable reinsurance market conditions and strategic acquisitions have bolstered the company’s performance. Marsh McLennan continues to innovate, notably through the Unity facility supporting Ukraine’s grain exports.

Guy Carpenter, reported a 7% increase in revenue, reaching $1.1 billion in the first quarter of 2024. MMC’s President and CEO, John Doyle, highlighted the quarter as a “terrific start” to the year, emphasizing strong momentum across the business, which includes substantial growth in both the insurance and consulting segments, further positioning the group for continued success in 2024.

Convex Group Ltd. reported a notable turnaround in 2023, achieving a net profit of $503.2 million, a significant improvement from a net loss of $142.2 million in 2022. Its net combined ratio also improved markedly to 89.6, down from 98 in the previous year. These achievements came amidst a complex backdrop of industry-wide challenges, including natural catastrophes and man-made events, which Convex managed effectively in line with its market share.

Join us as we continue to explore the headlines and news shaping the insurance sector, and stay tuned for more insights on the unfolding narrative of our industry!  Stay productive, stay safe and stay in touch!