Ningen: Tech, underlying performance and risk sharing key issues for regionals/mutuals

US mutual and regional insurers continue to navigate a host of challenges including the need to modernize their operations with costly data and technology, while many are also attempting to manage mounting natural catastrophe losses that have eaten into their surpluses.

Reflecting on the recent National Association of Mutual Insurance Companies 2024 conference in Denver, Colorado, Swiss Re’s US P&C CEO Monica Ningen said several key themes emerged during discussions, the first of which was around data and technology.

“There was not a meeting without data and tech as a part of the conversation,” said Ningen.

In some cases, it was regarding companies implementing a new policy administration system, or how to utilize generative AI. For others, it was on modeling secondary perils, predominantly wildfire or severe convective storm.

“Portfolio management is an important topic to them, depending on their geographical landscape,” Ningen said.

The issue for mutuals and regional carriers is that when they undertake a system conversion, “it’s generally a pretty high expense relative to their expense ratio”.

There is a perception that mutuals and regionals are often slow to adapt, and while that may be true for some, the cost of implementation is another significant aspect.

“But now in the world that we live in today, data and tech is becoming more accessible, both from the standpoint of there's more off-the-shelf services they can purchase, but also some of those cost-to-value ratios are changing for them,” Ningen said.

A second key theme was the underlying performance of the sector.

“[Mutuals and regionals] have been working unbelievably hard on what I would call improvements and maintenance of the upfront business,” said Ningen.

As the Swiss Re executive explained, there has been a real focus on rates and making sure pricing is adequate, alongside ensuring appropriate deductibles are in place.

“Given the performance of that segment over the past couple of years, they’re really doing great work to make those changes, and you’re starting to see that earn onto their balance sheets,” said Ningen.

“That’s not easy to do when you’re a regional or mutual,” she added.

And the third theme was ensuring there is appropriate risk sharing across interested parties. That is particularly the case in property, Ningen said, and not only with insurers and reinsurers, but also with carriers and their customers.

“It's really settling into more of an equilibrium,” she said.

At the same time, Ningen said there is “a growing market for reinsurance”, with high demand for property reinsurance, particularly in places where natural catastrophe losses are intensifying driven by exposure increases in property values, urbanization and inflation.

These themes, and efforts by mutuals and regionals to manage them, are resulting in heightened M&A activity within the sector.

Combined, firms have bigger pools of resources, meaning they can bear the cost of tech updates more easily, Ningen said. But, as she noted, it also puts them in a stronger position financially.

A plethora of regional and mutual companies have had their ratings downgraded, or put on watch, over the past 18 months due to surplus erosion from losses that previously would have been partly borne by reinsurers. The market correction of recent years and increase in retentions means a greater proportion are now retained.

“If they bring their surplus together, they can be stronger,” said Ningen.