So Swifty, we're in a highly competitive market across most sectors. 2024 was a heavy loss year, and 2025 has started in a similar vein. Some reinsurers are already running at 50% loss ratio for the full year, and yet it's only the end of first quarter. What are your thoughts?
ALASTAIR SWIFT: Yeah, Simon. I mean, great question. It's not too long ago that I was sitting on one of these, and we were talking about the market hardening and how the environment was in favor of insurers and going to be difficult for clients for a period of time. And now you see what's happening in the market.
And in some ways, it sort of defies a bit of logic, given how many losses there actually have been out there. And I think, what was it last year? 140 billion of insured losses or something along those lines? But I think the key bit that people need to remind themselves of is if you look at the profitability of the insurers and reinsurers, they are at record highs.
And I have absolutely no doubt in my mind that they've been very clever with what they've done from a reserving perspective over that period of time. And they're now looking at an environment where they need to grow to increase their shareholder value and their investors' returns. So they're going to be even more aggressive in what is a difficult market.
And as we've seen in previous market cycles, they'll keep the combined ratios in the right format even with that type of loss background by bleeding out some of the reserves from prior years. And I think if you think of COVID, it gave insurers and reinsurers an opportunity to potentially look at other reserving strategies that might not have been there previously. And now they're in this position where they can let some of that bleed back out to help massage their results.
So unquestionably, every insurer or reinsurer I talked to at the moment, its growth, growth, growth, growth, growth. I can't think of one conversation I've had this year where an insurer in some sense hasn't been talking about growth now. Some are more moderated around it. But then in the next breath, they are concerned that their retention rates are dropping, that they're losing business. And so ultimately, they'll respond at some stage this year.
And I think it's a time, frankly, for brokers to make the very most of the market conditions for their clients, but also, to make sure that their clients are aware that what goes down must go up and what goes up must come down. And we need to be making sure that we are articulating that to clients so in a year or two years' time, whenever things swing back the other way, clients aren't shocked by it. This is the cyclical nature, unfortunately, of our market.
SIMON DELCHAR: You say cyclical. I mean, I've been around 40 years and I don't think I've seen a market go down so fast. You make the point about reserves and release of reserves, and I think that's a point very well made. But you do wonder about US casualty and where that's going to end up with the nuclear and supranuclear awards over there.
ALASTAIR SWIFT: Yeah, agreed. Yeah.
SIMON DELCHAR: I think it's a very good time to be a buyer of insurance, but it's not without a health warning, I think, to your point. And I don't think it can just be about price. I don't think it can just be a race to the bottom because that won't end well. So I think we need to get some of the coverage that has been taken away from our clients back. I think we need a much bigger focus on claims and claims performance and claims payment timelines. But in a softer market, Swifty, do you think analytics become less important?
ALASTAIR SWIFT: No, I don't actually. I think it's almost even more important because from a client's perspective, you need to understand what your exposure base is. And for us from a broking perspective with the insurers, for us to be able to more accurately determine what people's true exposures and aggregates are, I think is vital.
I still think insurers are hamstrung by aggregate and accumulation issues. So you need to have great data. You need to be asking and making sure your clients are providing you with the very best data for the market. We need to make sure that we're using that data appropriately to drive insight from an analytics perspective.
I think if you think of the cost of transferring risk, what that analytics might tell you now is it might tell you, trade with insurers versus retain that risk as a client. And we need to be looking at those aspects. By the way, I completely agree with your comment around where we are from a coverage perspective. You look at the insurance gap, and it seems to constantly be growing.
And we should be in a position where actually, what we're looking at doing is trying to close that for our clients. It's this age-old thing. You talk to any company, they will have a budget that they have put to one side to spend on insurance, right? And they'll be very happy if they come in under budget. But they won't be too happy if they come in way under budget because that's going to give them a headache when the market moves the other way around.
So creating opportunities for companies to actually spend the budget that they've got on insurance to expand their purchasing across more areas of insurance or currently non insured risks that could be insured, in my mind, is a must. And I think analytics actually plays into that element too, because if we can broaden that analytics proposition, hopefully we can persuade more insurers to look at some of the areas that aren't covered at the moment and try and cover them.
SIMON DELCHAR: I agree. I think analytics are probably more important than ever before now. Things like supply chain, trying to get the right levels of coverage for clients and helping the markets help our clients, frankly, to ensure that our clients buy the right cover, buy the right limits, don't overbuy, but equally have adequate cover.
ALASTAIR SWIFT: Yeah.
SIMON DELCHAR: So I guess the harder market, the tough market-- and it was a tough market-- was five, six, seven years. So there's a lot of people in our teams who won't have experienced a softening market. What advice would you give our brokers in terms of managing the market and also managing clients?
ALASTAIR SWIFT: So unfortunately, I think over my very short career, I've spent more time in the soft market than I have in a hard market. And I think if you were thinking around how you manage your clients first through it, it is really understanding what their priorities are. Because it isn't always price, and it isn't always, always spend. It could be coverage. It could be other risks that are there.
It could be budget control, right? So is now the time to look at reducing retentions or increasing limits, knowing that ultimately you might need to take it back in a few years time. But whilst it's available, take advantage of it versus using your own balance sheet for it. So I think you need to have a in-depth and clever conversation with your clients to find out what their priorities are.
The second thing you have to be very aware of is that our competitors will be going into our existing clients on an unsolicited basis, saying that they can get a reduction of X or Y in a particular line of business in a market. We had an example just yesterday where someone came in and took a third off a cyber price, or that was what they proposed that to a client that they could achieve.
Now, that makes clients sit up and listen. So we have to be laying out all of the alternatives, all of the most aggressive approaches that you can take with a market and all of the alternatives that a client could receive from a market as if you were competing to win a piece of business.
SIMON DELCHAR: I agree. And I think give the clients a range, so what our target would be, which is probably the similar figure that you mentioned that our competitors will put on the table and go from there. Because if we don't, they will.
ALASTAIR SWIFT: Yeah. And it's a mindset shift for people. So we would give people a range the other way around from the point of view of depending on how much limit they wanted to buy in a hard market. We've got to do the same thing in the soft market. And then you mentioned, how do you deal with insurers?
The difficulty with insurers is going to be they are never going to be happy in this market cycle because they won't have enough premium volume to meet their growth objectives. And if they get that premium volume, it won't be at necessarily a rating point that they're happy with. OK. That's their issue. In my mind, that's not our issue to deal with.
We need to manage those relationships with insurers carefully. So if we're going to move business from one insurer to another and it's a big chunk of premium, my ask is that we flag that across the business so that we can manage those relationships more effectively. But we certainly shouldn't be frightened of it. And if a market isn't behaving and you've got your client's blessing to do it, move, move the business.
SIMON DELCHAR: I think communication is key. We do have to manage the overall relationship with our trading partners, no question about that. I think there can often be a disconnect between the people that you and I would talk to and those that our brokers would talk to. The underwriters on the shop floor aren't going to give the sort of discounts that their leadership would perhaps want them to.
ALASTAIR SWIFT: It's a great point. I was talking to a market earlier on this week. And we were talking about, OK, what's your ambitions for the year? And it was basically grow, grow, grow, grow, grow. And you ask, how are you going to do that? Well, we're going to make sure we don't lose any business. So that's the first bit. Make sure our retention of our existing portfolio is really high.
Second piece, we're going to be very aggressive when we look at new business to compete with incumbency. They're really the only two things that they've got, unless they're looking at broadening coverage or new products or those types of things, which would be nicer for them to look at, right. But this was just where they were.
Same underwriting company, same insurer hear the message back from one of our brokers of an interaction that happened with that insurer, where the particular underwriter is desperately trying to hold the line on pricing and saying they won't budge. My own view with that, and it's always been like this, is look, create the alternative.
Don't walk away from that insurer, though, because if they've built up a relationship with a client over a long period of time, it comes back to bite you in 12 months or 24 months. Do give them-- if they're incumbent, give them the last bite if you can. But make sure you create an alternative. And there'll be enough capacity out there that gives you the ability at the moment in this market cycle to change leads, to look at different markets, but put pressure on them.
SIMON DELCHAR: Create some competition. And I think it's also important to remember that the underwriters are only trying to do what they're paid to do, and we should continue to treat them with respect, even if we do get frustrated with them sometimes. At the end of the day, we've got to all trade in this market for a long period of time. So respect is crucial.
ALASTAIR SWIFT: Yeah.
SIMON DELCHAR: Swifty, I don't think we can have this conversation without touching briefly on digital placement and on facilities and on the Gemini facility that we're working on at the moment. We talked earlier about volatility and taking volatility out of the market. And that's exactly what Gemini is aimed to do. What are your thoughts in terms of the future of digital placements facilities? Because they're becoming more and more prevalent. Where do you see us in two, three, four years time?
ALASTAIR SWIFT: So it's again, and you've probably heard me talked about this in the past, I think all we're doing with the strategy that we have around facilitization is actually drawing to the front of our client base what has been a historic thing that the insurers have done in the past with qualifying quota share reinsurance, where they've benefited from the overrider of building capacity with other insurers behind themselves as a form of a facility.
And what we're doing is we're bringing that to the front end for our clients. And it's actually our clients that are receiving the benefit of that discount that we're able to generate as a result of it, not an insurer. Now, that may change in the long term. It may change that insurer's ability to price risk in the fashion that they would do normally because they're not seeing the benefit of an overrider to support what they're doing from a pricing perspective.
But what we're doing by doing it is creating a lot more transparency, I think, for our client base and for the insured. So I'm all for it. And I think digitization of the industry is going to continue at a pace because it does create more transparency for our clients. It takes cost, frictional cost out of the market, which I think, has been a bugbear of the insurance market for years and years and years.
And I think it's here to stay. I don't think it is something that will come and go. We talk about Gemini. Again, what a hugely efficient way of accessing capacity for our clients. What a hugely efficient way as an insurer to be able to deploy capital against a portfolio of business. Why wouldn't it work? Why wouldn't it succeed? Why won't it have longevity?
In my mind, it is the future. These types of things are the future of the market. How we trade going forward with insurers over the next three to five years is going to change. If anybody thinks we're not going to be digitally trading across our portfolio of business in most geographies around the world, think again.
I was in China two weeks ago. They're already thinking around how they embrace API technology from a trading perspective. Fair enough, on Chinese domestic business because no one wants to necessarily connect from overseas at the moment. But that's how they'll trade their business. And it will come, and it will come across the market as a whole over a period of time because, and the cost base that everybody is running at the moment through these manual processes and rekeying multiple times, bonkers.
SIMON DELCHAR: Ultimately, it will lead to, in my opinion, better outcomes for our clients.
ALASTAIR SWIFT: I agree.
SIMON DELCHAR: It takes the volatility out again. We don't have to go to that opportunistic market at the end of the slip to get something done. So yeah, I think it's the future and it's about time, frankly.
ALASTAIR SWIFT: I do have a concern for the industry as a whole, not with regard to our strategy, but for an industry as a whole. As more data becomes available, I do think that's going to be something that's sort of going to challenge maybe the foundations of what we've operated in over the last years from an insurance perspective of the premiums of the many paying for the losses of the few, so to speak.
I think as you get more and more data and you get more and more granular, so risk selection and how insurers deploy capital and capital is deployed is going to become even more focused. And I think the differentiation between good and bad risk, so to speak, from a pricing perspective, is going to become more and more apparent.
And that, in my mind, to an extent, is quite concerning because do we all of a sudden create more uninsurable risk, increase the sort of insurance gap versus decrease it because of the granularity of data that is available across the industry?
SIMON DELCHAR: It's a very good point. There'll be a flight to quality. And therefore, those risks which are less attractive will be-- they won't have the benefit of having those quality risks to be offset against. So Swifty, thank you for your contribution on this episode of The Marketplace Insights Podcast. See you on the next one.
ALASTAIR SWIFT: Pleasure, Simon. Thank you.
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