David Flandro on the paradox shaping today's reinsurance market with The Insurer

Reinsurance pricing is falling at a time when many of the risks surrounding the market are moving in the opposite direction.

David Flandro, Managing Director, Head of Industry Analysis and Strategic Advisory at Howden Re, joined The Insurer TV's Paul Walsh during Rendez-Vous de Septembre in Monte Carlo to discuss the thinking behind Howden Re’s Breaking the Glass report and what this unusual combination of conditions means for cedents.

Inflation and interest rate risk remain elevated. Geopolitical uncertainty persists. Yet the structural dynamics of the reinsurance market continue to put downward pressure on pricing.

“The world feels quite unwieldy, doesn't it? I mean, we've got inflation risk, we have interest rate risk, we've got war risk, sadly, but reinsurance pricing, because of the structural dynamics of our market, is going down," David said.

For cedents, that divergence raises an important question: how can they use today's conditions to prepare for what comes next? 

Risk is up. Reinsurance pricing is down

David pointed to several signals in the wider financial environment, including bond yields, country risk premia and equity valuations.

“If you look at what's happening in the world right now with global risk premiums, if you look at bond yields, if you look at country risk premiums, if you look at equity valuations, they're all going up," David said.

Reinsurance is moving differently.

“But in the reinsurance market, we have pricing going down, so it's a paradox," David said.

That divergence is prompting cedents to reconsider how they use favourable reinsurance conditions – and where they can build more options into their capital strategies.

Build optionality while conditions allow

Softer pricing isn't only an opportunity to reduce spend.

David discussed how cedents are looking more broadly at their reinsurance purchase and asked: “How can we plan for the future? How can we use this moment to optimise our reinsurance purchase to increase real optionality?”

That can mean considering traditional protection alongside bespoke reinsurance and capital markets structures to address specific balance sheet needs.

The objective isn't to predict the next shock. It's to have more options if conditions change.

Markets rarely turn for one reason

The conversation also looks back at previous cycles to consider what causes reinsurance markets to turn.

History suggests that one large catastrophe isn't necessarily enough.

“We find that, actually, one of the interesting things about the market is that it isn't necessarily a big catastrophe that turns the market," said David. "If that's what happens, it's a confluence of things.”

That context helps explain why reinsurance pricing and wider risk measures can move in different directions.

“So in fact, it's not that unusual for rates to be going one way while the world looks another way," David said.

Watch David’s full conversation with The Insurer TV for more on previous market turning points, the market's capacity to absorb shocks and how cedents can build optionality while conditions allow.