IGI: Firm focus on cycle management and value creation

Insurance markets are at an interesting inflection point. Market conditions are clearly changing across the majority of our global specialty portfolio after several years of profitable growth. During this time, we have doubled the size of our underwriting portfolio.

Now is the time for patience and discipline and a slightly different focus. Our business is cyclical in nature and critical to maintaining profitability and generating value is exercising restraint, making smart decisions and not getting pulled into what the broader market may or may not be doing. This is what cycle management is all about.

As an industry, we haven’t always been as adept as we should have at learning from the mistakes of the past when market dynamics are changing. Through many cycles, we have continued to repeat the same behaviours, bowing to competitive pressures, and driving rates down.

We’re coming off one of the best markets for many years, we’re well capitalized as a company and as an industry, and it’s only natural to want that to continue to chase business and show growth. But we know from experience that often doesn’t end well.

We’re seeing increasingly elevated levels of competitive behaviour in many of our specialty lines. And after two years of excellent profitability in reinsurance lines, while there is still plenty of opportunity and plenty of margin, we’re seeing clear signs of pricing pressure, while structure, terms and wordings are broadly holding steady.

This is the time for working all cycle management levers: intelligent risk selection, exercising discipline and pulling back or walking away when rates and terms simply aren’t sufficiently adequate.

The bottom line is to continue generating value throughout all stages of the cycle and if that means contracting the top line in favour of preserving the bottom line, then that’s the right thing to do, and that’s what we will do at IGI.

The benefit of our multi-layered diversification strategy means that the individual parts of our specialty lines portfolio move at different times and at different paces. This allows us to continue to take advantage of pockets of the market that continue to provide opportunities for profitability, while being disciplined about those areas where rates are coming down and conditions, wordings and coverages are showing some slippage.

For IGI specifically, we’ve been contracting our long-tail portfolio, which is a professional and financial lines book made up exclusively of non-US business, for more than eight consecutive quarters. Rates have been coming down consistently, albeit from high levels across this portfolio, and while it remains price-adequate overall, we are in some instances choosing to walk away from business that is simply not performing in line with our targets.

We recently announced that we have non-renewed a $50m piece of business within our larger professional indemnity portfolio, demonstrating exactly what we mean by exercising discipline and remaining focused on the bottom line. We have a history and a track record of managing market cycles and never chasing top-line growth at the expense of the bottom line.

Our short-tail business, which is very diversified by line of business and geography, is presenting more of a mixed picture, with some lines – energy, general aviation, political violence among them – showing a greater degree of competitive – even irrational – pressures. While others - engineering and construction, contingency and some elements of our property book - remaining buoyant, while some lines in our marine portfolio are still seeing price increases.

In the context of these current market dynamics, it’s very difficult to predict what will happen at the upcoming 1/1 reinsurance renewals. In the first few weeks of 2025, our industry experienced a $40bn loss with the California wildfires. This occurred well before the typical wildfire ‘season’, was one of the largest insured wildfire losses in history and one of the top ten largest insured losses ever, and in spite of this, markets didn’t respond.

To date this year, the industry has incurred over $100bn in losses, and capital positions remain relatively healthy. So in the absence of additional market losses during the current wind season, or an aggregation of large industry losses, we risk a continuing downward trajectory in behaviours as players push to retain market share

The world is certainly a more risky place, with geopolitical instability in many regions, a greater frequency of extreme weather events, and financial market volatility. At IGI, we are specifically geared to managing through this uncertainty and cyclicality - this is part and parcel of our business, and we have seen good times and bad times throughout our more than two decades in this business.

Our principle goal is to create value in any and all market conditions, focusing first on underwriting and leaning into opportunities with the best risk adjusted profitability profile, hold the line on rates and terms, and manage our exposures. And when things get too competitive, we’ll return excess capital to our shareholders. This is our value proposition today and will continue to be.

To download the full Monte Carlo RVS 2025 annual issue of GR, click here.