Lockton Re’s Tim Gardner, global CEO, and Ross Howard, global chairman, have been through their share of hard markets. Like many in the reinsurance business, they agree no two hard markets are exactly the same.
For the two men personally, this one is different because they are now with Lockton Re. Gardner joined Lockton Re in March 2019 after 20 years with Marsh & McLennan, while Howard, the former executive chairman of JLT Re, joined Lockton Re this March.
In the excerpt below from a recent Carrier Management interview, Gardner and Howard share their views on today’s market and where it is headed.
The factor that distinguishes this hard market more than any other is not the pandemic that has forced the world to transact business virtually. Rather, the current hard market is distinguished by the use of analytics to unveil new insights and capabilities.
“Capital these days is much more informed than it has been in the past. The analytics that’s available, the information that’s available is so much better than it has been in previous years,” said Howard.
“That’s why I make the point. I don’t see this as a market that’s been in previous hard markets where on certain lines of businesses it’s hard to get any capacity to support it. I think what we’re looking at here is a marketplace that has had enough of deteriorating results and that is looking to increase terms and increase rates. And not just the rates—we are talking about the coverages and the policy, that is, we shouldn’t forget that.”
Armed with data and analytics, the capital base has been able to analyze every line of business in every area and every territory.
“Results can show where the problem is and how you fix it. I think that brings a much more informed capital base that just doesn’t go into this complete withdrawal that’s happened in many, many cycles as before,” Howard added.
Howard’s point is that the current market is not a total hard market, although it is “very tight” for certain clients in certain lines. The market is affected less from COVID-19 than it is by lines of business that have over a number of years turned up deteriorating results. “So, even if this [COVID-19] hadn’t happened, I think we would be seeing a similar pattern. There will be significant rate increases in certain areas of the business, and others you will see less so. And it depends on the sector of the business, exactly what the loss ratios have been,” according to Howard.
That’s not to say the increases in certain areas won’t be sizable. “[L]ots of lines are going to be under a lot of pressure, and some more than others. You read about that all the time, and it’s absolutely true. There will be significant increases in certain lines of business. Significant.”
The situation makes the relationships insurers have with their reinsurers all the more important. A broker like Lockton Re, even when there are increases, can help “make sure they get the best transactions that they can get in the current marketplace,” he said.
“The analytical platform where you can review options in the appropriate way matters a great deal,” agreed Gardner.
According to Gardner, every market cycle is different because each is arrived at for different reasons. In the past, reinsurance rates, because of some loss activity, may have been increasing more dramatically than insurance rates. But in many classes of business that does not seem to be the case today.
Instead, primary insurance rates are affirming more than reinsurance rates, Gardner said, “which, I think, sets our clients up in really good positions where they should be able to demonstrate, despite some increases potentially and some pressure on reinsurance returns, that they’re getting enough front-end rate improvement. It’s that a rising tide lifts all boats phenomenon, where the reinsurers will benefit, particularly if they’re writing proportional contracts with that front-end rate lift.”
Analytics can help clients better show their portfolio profitability and reinsurance picture. “I think it will dampen a lot of the reinsurance increased pressure because of the success that our clients are having on the very front end of their business,” he said.
Gardner stressed that relationships are still important.
“I think the difficult markets are a time when reinsurance brokers really earn their commission levels. In a soft market, it’s relatively easy to get deals done, and the broker and the client have a lot of leverage. That’s not going to be the case in many lines of business to Ross’s point. So, creativity matters, preparation matters, relationships matter,” he said.
The coronavirus pandemic certainly has affected how Lockton Re associates and those throughout the reinsurance industry have gone about their business—a business that most everyone acknowledges has relationships at its core. In a typical environment, many of these relationships would be launched or reaffirmed in face-to-face meetings, including each year the Reinsurance Rendez-Vous de Septembre, Baden-Baden and other conferences. But not this year.
Gardner said the new normal of virtual meetings is different, maybe slower but not necessarily any less productive.
“It’s obviously not ideal where you’d love to be sitting across the table from a client or a new opportunity to have the dialogue, but that’s not the reality where we are,” he said.
Howard agreed that while it has changed some routines, it’s still worked out. “So, we’ve been pretty pleased with our ability to transact business virtually. We have systems in place to do it. It’s taken a lot longer to get the deals and structures finalized and finished. It’s more time consuming, as you’d expect it to be. But it’s been achievable and we’re very comfortable about that.”
The emphasis on analytics may be even more important in this time.
“[I]t’s really an analytics business that we’re in,” said Gardner. “I mean, obviously the transaction is hugely important, but the ability to analyze large swaths of data, to be able to pull insights in combination with clients, to be able to understand portfolio trajectory and profitability and…analytics is a huge driver of what we do and the value we deliver.”
Howard senses that while the lack of in-person contact has changed the business dynamic for clients and colleagues, it has also taught an interesting lesson.
“When the lockdown started and everybody started working from home, I think everyone sort of was relieved to see that we could transact business and it could work and that markets were available and the placements could be done,” he said.
While that realization was great, Howard thinks people have begun to realize exactly what they are missing by “not being in an office environment where the brokers are together and the face-to-face discussions with underwriters, particularly in London, where that’s always taken place.”
To view the complete Carrier Management interview with Gardner and Howard in which they also share their views on where Lockton Re is headed, the effect of consolidation, how they are creating choice and more, click below or visit here: Lockton Re: Creating Choice in Reinsurance with Talent, Analytics, Relationships.
To view the excerpt from Carrier Management‘s interview with Gardner and Howard on how they are reimagining Lockton Re, visit here: Lockton Re Imagined: Bringing Choice to Reinsurance Brokerage.
Visit the Big Re, Carrier Management’s reinsurance hub, for complete reinsurance coverage. Launched during the week of what would have been the Reinsurance Rendez-Vous de Septembre, this special page aims to provide complete reinsurance coverage of, by and for reinsurance professionals and buyers—including news, features, interviews, commentaries, white papers, videos, webinars and more.