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Greater participation of cat bond investors in the retro market has some advantages alongside the risks.
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The “squeezed middle” of the reinsurance sector is under pressure, but attritional risk aversion could drive ongoing changes.
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Cat risk-takers are benefitting from some money leaving the sector, but is this disruption creating inefficiencies as well?
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This year, instead of talk about running late, people were highlighting how the starting gun has barely been fired.
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The retro renewals are barely underway, as a challenging fundraising environment and queries over loss experience has delayed the typical pace of progress.
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Re-allocation of capital rather than true growth seems to be a more likely outcome for the sector in the near term.
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S&P suggested that an “abrupt rethinking” was a more likely outcome than gradual pricing increases – but a third way is possible if ratings agencies set a glidepath to change.
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The lower-than-expected losses so far from Ida do not stack up against what is thought to be a $30bn+ cat event.
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Recently one of my colleagues argued that it was time for a “bonfire of PMLs”, as the past five years have shown that the industry has seriously underpriced the kind of $10bn-$20bn loss events that have been happening since Harvey, Irma and Maria landed in 2017.
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It is not so much the size of the hit, as the regularity of moderate cat events that is worrying risk-takers.
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There is no such thing as an average loss year, but investors will still be looking for benchmarks.
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It’s been a year of high turnover in general, but the ILS low-cost operating model can become a disadvantage in managing through such disruption.