Validus Re committed to cat after casualty drives doubling in size to $3.1bn

Validus Re CEO Chris Schaper said the reinsurer is actively quoting across the board as others retrench, as he described an “underwriter’s market” that the carrier is addressing from a position of strength after reshaping its book over a two-year period in which it has doubled in size to $3.1bn, according to AM Best data.

Speaking to The Insurer at the Monte Carlo Rendez-Vous, the executive – who is also CEO of parent AIG Re and ILS manager AlphaCat – said the business has re-underwritten portions of its portfolio and leaned more heavily into casualty as part of a diversification strategy.

And addressing market dynamics at a time when property cat reinsurance is on the edge of a true hard market, he said that despite de-risking in some areas like the Southeast US, Validus Re is not retreating from the exposure.

“There is capacity available, but it must be at an effective price point, with all the changes happening in the market.

“And we think that pretty much every single line actually has a need for a proper price point. The cost of capital is going up and we need to actually have the proper return coming through for the deployment of capital,” he commented.

The executive said that in addition to rate increases, terms and conditions need to be tightened and retentions on reinsurance structures adjusted.

Among other dynamics Schaper expects to see as renewal negotiations gather pace ahead of 1 January is the continuing trend of non-concurrency on reinsurance placements.

“We started to see that last year and it’s something we continue to see. That should be okay for cedants because we’re willing to deploy the capital and, in deploying it, we’re willing to quote terms.

“We will quote the account and provide different ways of considering the deployment of capital for that account. We’re definitely here to be an effective party for transactions, and for deals to ultimately get done. It’s important as a professional reinsurer that you are actually out in the market quoting,” he said.

The Validus Re CEO said that decisions around the deployment of capacity would first favour the renewal of existing clients and supporting those cedants that need additional capital, as it looks to grow its current relationships and become more of a strategic partner.

New business would be considered after capacity has been provided to its renewing portfolio.

Schaper also expressed an appetite to become more embedded with “the right partners” in long-term relationships and said the reinsurer would be willing to commit larger amounts of capacity on non-concurrent terms to provide cornerstone capacity to cedants.

Shifting portfolio

On an AIG investor call last week, group chairman and CEO Peter Zaffino highlighted the performance of Validus Re under Schaper and the “tremendous job” the executive has done in reshaping the reinsurer’s risk portfolio.

He highlighted the significant cat presence Validus Re had previously had, particularly in the Southeast, and the challenge in achieving adequate risk-adjusted returns on that business. That had led to significant de-risking, including reducing Florida exposure by over 60 percent since 2018.

Zaffino described the reinsurer as “really strategic and helpful” for AIG.

“Treaty reinsurance companies can pivot much faster to take advantage of risk-adjusted returns in different areas of the business than an insurance company,” he observed.

Schaper told this publication that there had been re-underwriting across all lines in the portfolio over the last two years, but that the book is now “solid” and that Validus Re is now at an advantage to those that are still going through the process.

“Now it’s a question of what we want to do with this portfolio and how can we further enhance or enable it for our clients for the overall benefit of the book,” he said.

Casualty growth

And the executive told this publication that a pivot to significant growth in casualty quota share had been a driver of the overall expansion at Validus Re, and of a diversifying strategy aimed at reducing volatility in its results.

Although he wouldn’t provide specifics on gross written premium at Validus Re, he said the business has broadly doubled in size over the last two years, which would indicate a top line in the region of $3.0bn, based on what the Bermudian was writing prior to its acquisition by AIG.

“We’ve certainly written much more casualty business than we had ever written previously. But we feel that we’re in a pretty comfortable spot with it because of our timing and how we thought about assuming that risk,” said Schaper.

He added that the reinsurer sees further opportunity to grow in the segment but has been selective in the insurers it has been supporting with its quota share capacity.

“It’s about identifying the right businesses or insurance underwriters to do this with, and then we look at those companies and engage there,” the executive explained.

“Generally, when I think about the market, this is an underwriter’s market right now. That’s different to the past when it was more of an incumbent’s market. And having capital is going to become more and more core to the ability to satisfy the needs of your clients,” he said.

The Insurer comment

Despite a number of staff exits from Validus Re in 2020-21, and ill-informed rumours about a potential sale, AIG has made it clear that it is committed to the reinsurer and is now supporting its growth after a period of repositioning.

And Validus Re is now demonstrating its commitment to broker partners and clients in its willingness to quote and provide capacity for the right price in the fast-tightening property cat market.