Grant Hollyman, CEO of reinsurance brokerage Gallagher Re Australia and New Zealand, highlighted a shift in the Australian property and casualty reinsurance market, with reinsurers showing greater interest in total insurance, although it remains difficult to purchase.
In an interview with Reinsurance News, Hollyman discussed the current state of the Australian property reinsurance market and said Gallagher Re is seeing increased buyer demand for total insurance.
“What we’re seeing is our clients want second, third, fourth and even fifth event coverage as part of the growing demand for more total coverage. And they’re becoming more and more common.
“For the first time in many years, we are getting reinsurers back in favor of gross coverage. During tough markets, it was very difficult to buy gross coverage. Today, it’s still not easy to buy gross coverage, but there is interest now. People are spending more time on modelling, and a lot of gross coverage today is based on burn costs (a method of calculating reinsurance premiums based on past claims experience),” Hollyman said.
Gallagher Re is currently seeing ample funding in the market, suggesting it is a favorable time for reinsurance buyers in the region, although expectations still need to be managed.
“No reinsurer has come to Australia in the last two years and said ‘I want to reduce capacity,'” Holliman said. “So we have plenty of capacity and as capacity increases, supply increases.” Overall, we do expect conditions for customers to improve due to increased supply. “
Holliman described the situation in the Australian casualty reinsurance market as similar to that in the real estate sector.
“The supply is there. For property, casualty insurance is a good capital arbitrage, it’s uncorrelated. So if you write in real estate, you would generally want casualty insurance if you can, based on your credit rating. So we’re also seeing an increase in the supply of casualty insurance,” Holliman said.
He continued, “The challenge is credit quality on the casualty side. Australia is probably a particularly litigious country and we have a long tail so we only have the best security. But security is getting better and better. We spend a lot of time with our clients buying the best security and currently the best security is available. You look at all the markets that have upgraded, such as Lloyd’s, from A+ to AA-, that’s a big change and a great thing for us in the reinsurance community.
“There has never been a better time for capital and capital quality in the reinsurance industry. I’ve been in this business for 30 years and we’ve never had more capital and we’ve never had better capital in the market.”
Additionally, Holliman addressed whether there has been an increase in demand in Australia for alternative capital solutions such as parametric insurance or catastrophe bonds.
“As I said, we’ve seen an increase in demand for gross guarantees. Now, gross guarantees are where our catastrophe bonds come in, and catastrophe bonds are right at the lower tier. Cat bonds are a very effective tool and they’re leveraged. However, the risk transfer prices are still quite cheap. So catastrophe bonds are very useful, but they also compete somewhat with our traditional risk transfer prices,” he said.
Meanwhile, Gallagher Re sees little need for parametric insurance.
“The interesting thing about parametric insurance is that the buyer typically knows a lot about the risk. We have the same data set. We can all agree on the cost of loss. A lot of our clients are not willing to pay deposits and extra fees. So we don’t see as much parametric insurance as we do with cat bonds and aggregate insurance,” Holliman said.