MS Re CEO: Maintaining discipline a greater challenge to reinsurers than macro environment

By David Bull

June 3 - (The Insurer) - Surplus capital of $60 billion to $70 billion poses a bigger challenge to the reinsurance sector than macroeconomic headwinds, MS Reinsurance CEO Robert Wiest told The Insurer, as he said the company remains focused on partnering with the right cedants.

Last month, MS Reinsurance reported that its gross written premiums increased to $3.6 billion in 2024 from $3.1 billion the previous year. The reinsurer's combined ratio improved to 88.7% last year from 90.5% in 2023.

Wiest said at the time that the reinsurer – which also had the outlook on its long-term issuer credit rating revised to positive from stable by AM Best – is taking a “portfolio approach” to the business and focusing on being a "reliable partner who does not shift course".

“Growth is a continuation of our strategy, not a reaction to the market. We’re preparing for the next stage," he said.

In an interview with The Insurer following its results announcement, Wiest was asked whether macroeconomic volatility in the first half of this year would affect reinsurance market dynamics and how MS Reinsurance approaches so-called cycle management to navigate shifting pricing dynamics.

Wiest noted that slowing GDP growth can hit a reinsurer’s premium pool, while inflation can erode underwriting margins and changing yields can affect the asset side for carriers.

“All of that is a known factor for our industry, so I don’t expect any company to have a problem in managing that,” he said, highlighting the way the sector had negotiated coronavirus and the inflationary fallout.

“I think the bigger challenge for the industry is still the fact that we carry about $60 billion to $70 billion of surplus capital – the retained earnings over the last year – which is waiting to be deployed.

“I think that’s the far bigger challenge for reinsurers … I’m more worried about the behaviour of all of us, because we’re sitting on too much capital,” he continued.

Wiest took the reins at MS Amlin AG – which later rebranded to MS Reinsurance – in January 2022 after moving over from Swiss Re, where he had been chief operating officer for reinsurance.

Talking to The Insurer, he questioned the industry’s focus on cycle management, suggesting that despite commentary from reinsurers, there is no statistical evidence that they are “outsmarting the cycle”.

He said generally reinsurers are “just tracking the cycle” and that the market lacks discipline.

Despite the current softening being seen in the property treaty market, Wiest said that overall the environment is positive, with 2025 set to be a good year, as next year is also likely to be.

“But you can see how we go into the cycle, and we all want to grow. The big difference for me is that this time, the overcapacity you see in the market on the reinsurance side is not any innocent capital coming in from nowhere, this is retained earnings.

“That’s our own money which we generated, and we are all putting it back into the market. So I don’t really see the famous cycle management capabilities, and I don’t see the discipline,” he observed.

TWO LEVELS OF UNDERWRITING

Wiest said that rather than cycle managing different lines of business or attempting to get absolutely every underwriting decision right, MS Reinsurance's approach is to back cedants that align with its approach to underwriting and risk management and support them more broadly.

“We do two levels of underwriting. We want to know who sits on the other side of the table. Do they have a similar risk approach? What’s their management philosophy in regard to risk management? Do they have good underwriting capabilities? Most importantly, do they know what’s happening in the market?

“And if this is positive, then we come in with our technical underwriting, but broadly we have already made the decision to step in across the portfolio. We’re not optimising individual lines of business … our principal goal is if we like the client and we trust them, we want to have a share of their business,” said Wiest.

The reinsurer’s current portfolio is roughly 40% Americas (including Latin America), 40% Europe and the Middle East, and 20% Asia, where it is more limited in its scope because it does not write Japanese business, given its ownership by Mitsui Sumitomo.

Wiest said he believes MS Reinsurance has runway to continue growing its book of business by expanding share with existing cedant clients as it deepens its relationships.

Commenting on market conditions, the executive said that 2023 represented the peak for reinsurers, with 2024 still in “green” territory, based on the company’s green, amber and red view of pricing dynamics. He added that 2025 is also expected to be “green”, but 2026 potentially “green” or “amber”.

“We should be fine in 2025, OK in 2026, and then it’s most probably time to take a cautionary position,” he suggested.

On casualty, Wiest said that MS Reinsurance is relatively well placed because it only started to build up its book from 2021 and 2022 onwards.

“I acknowledge it’s a tricky market segment to read. I’m not concerned for the portfolio which we have,” he commented.

The executive highlighted tort reform efforts in the U.S. as well as the work done in recent years by insurers to manage down limits, which means there is a “significant reduction” to their exposures on an individual basis even in the face of nuclear verdicts.