Axis’ Arora: ‘Loss of patience’ over rates could lead to capacity reduction

Reinsurers’ loss of patience over rate improvements could lead to capacity withdrawal creating the conditions for a long-awaited hardening market, according to Steve Arora, CEO at Axis Re.  

All the pieces were in place for a compelling case for a real rate improvement, he said at Insurance Insider's (Re)Connect event. 

Industry losses in the past few years, and those in 2020, the pressure on reserves and development in casualty lines were all factors the industry is currently contending with.  

Additionally, retro rates have increased, financial markets volatility has impacted the solvency ratios of some companies while climate change has led to a rise in nat cat losses. 

But whether there would be a reduction in supply due to an inability or unwillingness to provide cover still remained to be seen. 

“I think the signs point to more of a capacity withdrawal than a capital withdrawal,” he said.  

But even if that trend emerged, Arora continued, there was still the risk that the market would not be where it needs to be.  

“There are very material dynamics, such as low interest rates, that significantly impact profitability and there is the question of whether the rates and the improvements in the market will be able to keep pace with some risks,” he said. 

The winners in the present situation would be those who focus on discipline, underwriting selection and really effective portfolio management, the executive continued.  

They would not only concentrate on rate but also on terms and conditions, on creating the right structures and correcting any inadequacies in the expected loss calculations. 

Looking forward to the profitability versus scale conundrum a harder market might bring, Arora admitted that growth “was exciting.” 

But some companies might be better off retaining a strong position and growing incrementally, he said.  

“We are going to deploy capital when it makes sense.”  

Reflecting on the soft market, he said some companies during that time had become very client-centric.  

It was important “to avoid the on off switch,” he said.  

“Maybe you switch from passenger to driver and the switch goes off and you behave differently. That’s a loss of credibility,” he said. 

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