Andrade: Class of 2020 will not be the same as 2001 or 2005

The so-called “Class of 2020” start-ups are unlikely to significantly disrupt the (re)insurance market, as at least $7bn of capital is needed in today’s world to make a difference, according to Everest Re president and CEO Juan Andrade.

During a fireside chat at this publication’s (Re)Connect virtual conference, the executive noted that it was unlikely that the wave of start-ups anticipated this year would look the same as the new business creation seen after 9/11 or hurricanes Katrina, Rita and Wilma.

“The days where you raised $1bn and went to market, they may be past,” Andrade said. “I think at this point unless you have $7bn or more of capital, I don’t think it will make a big difference in my mind to some of the key customers we have out there.”

A flight to quality is taking place in terms of both investor and customer behaviour, Andrade explained, with preference for businesses with established balance sheets, ratings, and platforms.

In this environment, with so much uncertainty from Covid-19 and prolonged low interest rates, clients care about sustainability and security, he continued.

“These are some of the questions [that are] going to be raised for a lot of the de novo capital and new platforms coming into the space,” Andrade pointed out. “Yes capital is key, as are underwriting teams and leadership… but do you have a roadmap to build a sustainable franchise over time?”

(Re)insurance is a long-term business and the way you build relationships is by being reliable and sustainable, he added.

“That’s the challenge for the capital coming in – will it be there in a year, or two, or three? [The business case] has to be more than taking advantage of a firm market. It’s about relationships and it’s about sustainability.”

Commenting on Covid-19 and its impact on industry capital, the Everest Re CEO said he was “not in the camp who thinks this is the worst cat to hit the industry”.

However, there is a lot about this loss which is unknowable, he added.

“No one has said that this is a capital event at this point in time. But it is significant and it is ongoing.”

However, Covid-19 has complicated matters further for the alternative capital markets, Andrade continued.

“There has been a bit of a pause right now. I think there has been some investor frustration, after the cat losses in 2017, 2018 and 2019, and Covid has muddied the waters a little bit more,” he said.

“Capital is generally here to stay. It’s paused but it will come back.”

The reality is that (re)insurance is still a diversifying asset class, and the total amount of capital invested in this industry is very small compared to the amount of AUM available in the world, the CEO added.

“It’s only a matter of time before investors come back with more confidence to invest in our space.”

Looking ahead to the future, Andrade said he believed ILS investors would “look at the lesson learned” and, going forward, would associate themselves with companies who are good underwriters, have good modelling capabilities and a good handling of cat exposure.

“I also think they are likely looking at lines outside of property cat – looking at casualty, D&O – I do see an expansion beyond property for ILS investors in the future,” he said.

To view this discussion and other (Re)Connect sessions on demand for free, click here.

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