Insurers with business in catastrophe-prone areas faced a real battering last year. For those without significant capacity and revenue streams, soldiering on through 2018 is going to be tough. Others, like Arch Insurance Group, weathered the storms (excuse the idiom) and were prepared to take a hit to their catastrophe-exposed business after several years of benign activity.
Arch Insurance Group is a subsidiary of Arch Capital Group Limited out of Bermuda. It’s the primary insurance company in the Group with its largest component based in the US. It’s aligned into 12 specialty segments and almost 30 sub-specialty segments, with major focuses in loss sensitive risk management, casualty, professional liability, and excess and surplus property.
Speaking to Insurance Business at RIMS 2018, Mike Price, chief underwriting officer at Arch Insurance, said he was confident the company is ready for anything – whether 2018 brings another busy storm season or births another benign catastrophe period.
“Arch has a very diversified stream of revenues. From that perspective, while we were impacted by the natural catastrophes last year, as an overall percentage of our shareholders equity, we were much less impacted than some of our peer companies,” Price told Insurance Business. “However, as a meaningful writer of catastrophe exposed business, we are seeing some movement in pricing in the high single digits for 2018.
“We’re not smart enough to forecast 2018 storms, but we’re well positioned at Arch so that, in the event we have a similar catastrophe prone year in 2018, we have the framework, ballast and strength to withstand what comes at us.”
Before Harvey, Irma and Maria made impact – not to forget the Mexico earthquakes and the California wildfires – insurers writing catastrophe-exposed business were fighting a soft market environment. After a monumentally busy 2017, rates are heading back into positive territory, which is a “healthy uptick for the marketplace,” according to Price.
“We implement several catastrophe models that help inform our underwriting and pricing. However, I want to emphasize that while all these techniques are useful in making sure we understand the ultimate loss cost and downside risk, we believe good old-fashioned underwriting still has to be at the core of what we do,” he said.
“We’ve seen instances over the last several years where model-driven MGAs are pricing business below its long-term loss costs, but no matter how good your models are, that just doesn’t make economic sense. There still has to be a good sense of healthy rates and adhering to your underwriting guidelines to withstand things in the long run. We look at a balanced approach that says: incorporate models to augment and supplement the good work our underwriters are doing in the field.”
