By Chris Munro

Feb 4 - (The Insurer) - The impact of California wildfire losses on the industry has “probably ameliorated” property catastrophe reinsurance price reductions, Everest Group CEO Jim Williamson has said, while the executive hailed the company’s underwriters for passing up deals that got “clobbered” by the event.

Everest on Monday evening reported a 42.3 percentage point year-on-year deterioration in its fourth quarter combined ratio to 135.5 percent, which came on the back of its pre-announced $1.5bn of casualty reserve strengthening.

In its earnings release, Everest said its estimated Q1 California wildfire loss was in the $350mn to $450mn range, net of estimated recoveries and reinstatement premiums.

That estimate is based on an insured industry loss range of $35bn to $45bn, Everest said.

On a call with analysts to discuss Everest’s Q4 and full-year results, Williamson acknowledged there is “a pretty broad range” of industry wildfire loss estimates, but his company is “feeling pretty good” about its forecast.

“The reason why I'm feeling pretty good about the range that I described earlier, and I feel great about the performance of our team vis-a-vis that market share number, is because of the quality of the underwriting that took place.

“And I can't emphasise this enough. We passed up deliberately for very specific reasons on a number of deals that got completely clobbered in this event,” said Williamson.

A key issue in assessing losses is that loss adjusting for an event such as the wildfires “is very challenging”, Williamson said.

“There have been public access issues that are pretty well described. I think it will take time for people to hone in their own numbers, which is why we're still working with a range and not a point estimate.

“But I'm pretty confident given what we are on and we are not on in the numbers that I shared.”

Wildfires to impact pricing

During the call, Williamson said property catastrophe pricing was down generally between 5 and 15 percent on loss-free programs at the recent 1 January reinsurance renewals.

But Everest expects the California wildfire losses will “serve as a reminder, as if one was needed, to all property reinsurance underwriters of the need to maintain pricing discipline and achieve adequate rate”, Williamson said.

“[The California wildfires are] a major event that certainly we do expect to have a positive impact on prices,” Williamson said.

“What I tend to hear from people is that if there was a move to decrease rates in a reasonable fashion at 1.1 – which I indicated we've seen 5 percent to 15 percent off loss-free programs – that's probably ameliorated.”

It will take time to play out, Williamson said, but he noted that when you add the losses to the fact that a lot of Everest’s clients are looking to buy more overall cover, there is increased demand within the market.

“Then you further look at the fact that those clients, if they have their choice, would rather do more of that cover with Everest, I think that means there's a terrific opportunity for us to continue to be very, very selective in the deals we're writing and to get terrific economics, which I think is a very favourable thing,” Williamson said.

Property cat remains attractive

Despite that downward trend, Williamson declared that “global property cat reinsurance market overall remains attractive for Everest capacity”.

“Overall rate levels remain above what we need to be willing to deploy capacity in most markets,” he said.

“An exception to my view on the property cat market is continental Europe,” Williamson noted. “European activity in the form of severe convective storm hail and flooding is clearly a rising trend. Those events drove significant annual losses."

Williamson highlighted France, Germany, Italy and Eastern Europe as areas that have been particularly affected by such events in recent several years.

“After a thorough review of our modelling and analytics for these perils, we reached the conclusion that we needed to charge more for European cat exposure. In some cases, significantly more.

“As a result, our average modelled loss costs increased by about 10 percent,” he said.

Everest “fully exited” over 20 deals, and “significantly cut back on many others”, said Williamson.

At the same time, Everest increased “moderately” on the most profitable layers and programs.

Cuts NA casualty QS

Everest Group has cut almost $750mn of North American casualty quota share reinsurance business since the start of 2024 as the company continues to remediate its company-wide liability portfolio, Williamson noted on the call.

Williamson said the company cut its casualty pro rata book by over 7 percent in 2024’s final quarter. However, he said that “really understates extent of our disciplined actions, which were offset by growth in non-US casualty”.

“Everest has been an early and consistent voice regarding the changes needed in the US casualty quota share market,” said Williamson.

“Ceding commissions are too high and capacity is generally available regardless of the quality of the cedant,” he added.

Given those market conditions, Williamson said Everest has “maintained our singular focus on underwriting discipline and ceded selection”.

To that point, the executive revealed that since 1 January 2024, Everest has “walked away from nearly $750mn in North American casualty quota share business”.

“Our approach in this line is simple. We conducted thorough ground-up underwriting and long cost review of each treaty, and we cut back anything that doesn't meet our return expectations, period,” he said.

At the recent 1 January 2025 renewal, Williamson said Everest’s North American casualty quota share team “again executed at the highest levels”.

“Overall, our total reinsurance division bound premium was down by about 3 percent during the renewal driven mostly by the aforementioned casualty discipline which was offset by growth on the very best deals in market, mostly in property and specialty lines," he said.