TransRe’s Brandt: Industry “will have a problem” if high inflation levels persist

TransRe is keeping a close eye on its casualty business as rising inflation puts pressure on the claims outlook, particularly for D&O liability, the reinsurer’s CEO Ken Brandt has told The Insurer TV.

TransRe has been frank about its strategy to pull back from property cat, with the carrier instead focusing on growth in casualty and professional lines.

However, its chief executive is also cautious about the claims outlook for casualty business, particularly D&O, now that runaway inflation is menacing markets across the globe.

“We think that 2022 is probably a peak year, particularly in D&O, probably in some other casualty lines. Inflation is now 8, 9 or 10 percent, depending on where you want to look,” Brandt told The Insurer TV.

Pricing will struggle to keep up with deteriorating loss ratios, he suspects.

“If you’re going to have sustained inflation at those higher levels, I don’t think the industry will keep up, and I think we’ll have a problem pretty soon if inflation is sustained over a prolonged period,” he added.

Brandt’s comments echo sentiments heard at a panel discussion on casualty business held in August by The Insurer TV, in association with reinsurance broker Guy Carpenter.

Speaking in that debate, Will Garland, president, Centers of Excellence, North America at Guy Carpenter, acknowledged there was upward pressure on pricing on casualty excess of loss programs.

“Our view heading into 1.1 this year is that the market will remain pretty stable on the casualty side, but I think there will be a close view on where rate change is going across all lines of casualty business as well as that loss development,” Garland said.

Primary insurance pricing has been strong for professional lines business, Brandt suggested, which through quota share deals has helped TransRe in its pivot away from catastrophe risk.

“In the last three years, particularly in the US, the professional lines and casualty market have been quite strong in the original market,” said Brandt. “Rates have gone way up, limits have come down. The vast majority of our portfolio is quota share, so we’ve gotten a direct benefit from that.”

Ceding commissions are at all-time highs, Brandt noted, although he expects them to begin to drop.

“Since the market has been so strong over the last couple of years, the economics allowed you to provide a higher ceding commission than you normally would. But those economics are changing, the market is coming off. And those ceding commissions are going to have to start coming down,” he said.

TransRe’s de-risking from cat business is now complete, he said, but the plan was never to exit cat business entirely.

“We’ve pulled back some capacity over the last year, mainly in the lower layers, aggregate programs, where a lot of the secondary peril losses were coming from. We’re pretty satisfied with where our portfolio is now, and we still have a lot of limit committed to the cat market,” he said.

Lower level cat in the cards

Brandt is open to expanding into writing more lower-level cat business in future, provided that pricing begins to merit the risks being taken.

“If prices go up sufficiently enough, we have no financial limitation or psychological limitation to re-expand our cat aggregate, but prices and terms have to improve. And on the lower layers that I mentioned before, those have been problematic,” he said.

Brandt continued: “Let’s face it, over the past several years, the reinsurance industry has basically provided earnings cover with a cat name on it, and those layers have been better priced and handled net than in the reinsurance industry.”

Despite the effects of inflation, Brandt is confident that TransRe’s professional lines heritage – and resultant in-house expertise – puts it at a relative advantage in the market when underwriting such business going into 2023.

“We certainly have a lot of confidence in our abilities. We have a lot of excellent underwriting experience, pricing experience and claims management experience, and we’ve put a lot of resources into better data collection and data analysis to get us more insights,” he added.

Watch the full interview with Ken Brandt talking to The Insurer TV from our balcony suite pop-up studio, in action for the duration of this year’s Monte Carlo reinsurance Rendez-Vous. View for more on: