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Greenlight CEO Burton calls cat pricing ‘disappointing’, skeptical rates will rise

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Greenlight CEO and Chief Underwriting Officer Simon Burton expressed a dim outlook on the property cat market, telling analysts last week that despite the elevated levels of loss activity of the past year, the chief executive was “skeptical” pricing would materially improve at the upcoming renewal.

Speaking on a call with analysts to discuss Greenlight’s third quarter results, Burton called rate increases last January “disappointing”, as he noted that a fresh influx of capital put a ceiling on how far pricing would increase.

Looking ahead to this year’s renewal, he commented: “[That] leaves us skeptical that sufficient capacity will be removed to support the needed catastrophe price improvements at this year-end.”

“Our view on cat is, let’s call it, middle of the road,” Burton said. “We don’t consider cat sufficiently well priced to be outsized in terms of our portfolio. That may change in the future, but I am skeptical that cat tends to be one of those classes where loss appears to drive sentiments, and the industry may demand price increases.”

He went on to say that ultimately, “price is a function of supply,” and that the level of capacity that will be available at the upcoming renewal is “unknown at this point.”

Still, the executive said he expects that the heighted cat losses will help “support and extend” the favorable market conditions in other lines of business, and that low interest rates will further support pricing conditions.

Greenlight chairman, the hedge fund manager David Einhorn said on the call that while the firm’s underwriting suffered in the third quarter from several cat events, underlying reinsurance trends “remain favorable.”

Greenlight Re’s exposure to Hurricane Ida, flooding and hailstorms in Europe, and South African riots drove the reinsurance carrier to a 3Q $12.6mn underwriting loss and a combined ratio of 109.3% Third quarter underwriting results included $26mn of cat losses, which stacked 19.1 points to the firm’s combined ratio.

Auto “dial-down”

CEO Burton also commented on the company’s recent moves to “dial down” its auto exposure, amid increases in claims frequency and severity, as well as continued supply chain issues.

“We believe the reasoning behind our decision to reduce exposure has been validated as we are seeking an uptick in accident frequency along with increases in claims severity driven by elevated repair costs as U.S. drivers have reverted to normal driving habits over the past few months,” he said.

He went on to say that the carrier’s auto exposure will likely take another step down in 2022, as the firm has decided to not renew a further portion of this book on January 1.

“We've taken action quite proactively. I think on reflection, it's been a good decision to take that book down,” Burton said.

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