All signs point to a true hard market: Brad Adderley, Appleby

The reinsurance market looks set to undergo further hardening as the January renewals fast-approaches, and with insurance-linked securities (ILS) players struggling to raise capital and reports of deals failing to get done at any price, it could be a truly hard market, according to Brad Adderley, Bermuda Managing Partner, Appleby.

“Yes, the market is hard, but whether it’s the best hard market or not, and if it’s truly hard, well that remains to be seen,” said Adderley, in an interview with Artemis around the launch of our Q3 2022 catastrophe bond and ILS report.

Adderley feels that, ultimately, this is a different hard market than seen in the past, in part because of the lack of new startups during this period of disruption.

“In previous years, if you and I had this conversation during a hard market, we would be talking about how many new startups will emerge, right, and we’re just not hearing that. What I am hearing is that new startups are harder to form now because of the costs, the implementation, paying for the modeling and so on. All of these things just cost more money and take more time to implement,” said Adderley.

Catastrophe bond issuance in the third-quarter of 2022 was subdued, and while issuance in the previous quarter was strong, it’s apparent that a couple of deals failed to come to market, which Adderley feels is another sign that it could be a true hard market.

On top of this, Adderley told Artemis that he’s been hearing from some managers in the ILS space that they want to deploy more capital but are finding it a challenge to raise funds, while some are more cautious and waiting to see if it is a truly hard market after being stung by losses and trapped capital in more recent years. It’s worth noting that the impacts of hurricane Ian has likely exacerbated the situation for many.

“So, if ILS players are saying I wish I had more money to deploy than I have, and raising capital is not as easy as it was, then that says to me that it is a really hard market,” said Adderley. “In a way, this all says that the hard market is going to get harder. It doesn’t seem like we are going to see a wave of Class 4’s come in.”

For insurers, reinsurers, and ILS market participants, there are clearly challenges in the current market environment, but this gives rise to opportunities, and, according to Adderley, a deviation from the norm could be a positive for the sector.

“Before, a hard market would be more like climbing up a hill and staying at a plateau for a couple of years before it starts going down because you’ve got enough money coming in, and as a result, it would last for a couple of cycles. Recently cycles have seen capital poured in so quickly that hard markets have only last a short period of time – they have been sharp peaks with no plateaus.

“Now, though, it’s been building for the last couple of years and price and terms are improving, but compared to eight years or so of downward trend, we’re still not where we need to be,” said Adderley.

“I just think it’s different than previous years, and I think this could be a positive for everyone. You might get people catching up to where they should have been years ago. The hard market might last longer, and maybe it gets even harder. And, then, that might help spur new vehicles in the future because now it’s a properly hard market at a time where raising capital is more difficult, and people are pulling out of cat risk,” he concluded.