Reinsurance Strategy

This year, the reinsurance market is particularly challenging. A combination of market pressures culminating in the insurance industry is driving the current market conditions. Like others, we’re working to navigate these challenges and want to share our approach with you.

First, a look at the factors impacting the current competitive reinsurance market.

• Inflation: As reinsurers continually seek to control their losses, they need to ensure carriers are accounting appropriately for inflation in their premiums.
• Investment losses: Investment portfolio losses in the market are taking away opportunities for risk-based capital investments, leading some reinsurers to reduce their net catastrophe exposures. Aon estimates that global reinsurer capital declined by 15% to $575 billion over the year to December 31, 2022, principally driven by substantial unrealized losses on investment portfolios.¹
• Increased cat activity: Cat activity has been elevated for the last seven years, causing significant losses for reinsurers. The U.S. losses from billion-dollar disasters from 2015 to 2022 are more than $1 trillion. For perspective, from 1980 to 2000, about 75% of all disaster-related costs were due to billion-dollar disasters. By 2022, that percentage rose to 85%, or $2.475 trillion out of $2.850 trillion.²
• Higher projected probable maximum losses (PML): At January 1, 2023, reinsurers’ modeled PML projections were significantly higher than last year, reflecting above-average catastrophe losses, inflationary pressures and unrealized investment losses.

Reinsurer loss fatigue has set in, and after these tough years, capacity is tightening. Moody’s predicts further property catastrophe reinsurance price rises at midyear renewals.³ These tight supply conditions in the traditional reinsurance market will further fuel additional property catastrophe price increases. The outlook remains challenging.

SageSure’s Reinsurance Strategy

We’re always looking ahead. When we saw signs of the hardening reinsurance market, we developed a multi-faceted strategy to not only ensure we could renew our existing coverage but also help our carrier partners increase their capacity for growth in coastal states throughout 2023. That approach consists of:

Securing Cat Bonds

Often viewed as an alternative to traditional reinsurance, cat bonds are a segment of the insurance-linked securities (ILS) market. They allow property insurers to transfer risk to capital market investors to supplement traditional reinsurance coverage and cost, which allows us to secure more reinsurance capacity. With more reinsurance capacity, our carrier partners can provide more underwriting capacity for our producers.

SageSure is building a strong reputation in the ILS market and has helped our carrier partners secure two cat bonds so far this year:

• A $355 million cat bond for SURE, a 78 percent upsize from the initial $200 million transaction target and the largest deal since Hurricane Ian at the time of close
• A $125 million cat bond for SafePort, a 25 percent upsize from the $100 million transaction target

These cat bonds will help enable multi-year capacity and fixed price stability. Plans include securing $600 million in cat bonds by the end of the year.

Captive Reinsurance

We have also leveraged our strong capital position to finance a portion of our carrier partners’ risk. As a part of this strategy, in March, we closed a $50 million expanded revolving credit facility with Wintrust Financial Corporation. The facility will partially be used to support quota share capacity with Anchor Re, a captive reinsurance vehicle, on behalf of SageSure carrier partners.

Captive reinsurance allows us to:

• Finance almost $300 million of captive limits for carrier partners
• Rely on less reinsurance coverage with traditional reinsurers
• Benefit from savings on reinsurance costs because of self-financing

Traditional Reinsurance

Together, cat bonds and captive reinsurance positively impact our ability to support our carrier partners’ reinsurance placements. Having a diversified approach decreases their reliance on traditional reinsurance in a difficult market. With this strategic approach, we will help our carrier partners place $1.5 billion in reinsurance capacity this year.

The Path Ahead

Our approach to reinsurance this year enabled SageSure to deftly maneuver within a difficult reinsurance market. Leveraging our expertise and implementing a strategic and diversified approach to reinsurance for our carrier partners will allow for potential growth in key coastal markets and reduce our need for rate increases in comparison to previous years.

It’s part of how we’re delivering on our promise to provide highly rated coverage in coastal states.

1. www.aon.com/reinsurance/getmedia/1909a5c8-cbeb-482f-b798-8fe0b9806ddc/20230403-april-rmd.pdf
2. https://www.climate.gov/news-features/blogs/2022-us-billion-dollar-weather-and-climate-disasters-historical-context
3. www.theinsurer.com/news/moodys-highlights-rising-reinsurer-pmls-and-predicts-further-cat-pricing-pressure/