View from the top: Juan Andrade, Everest Re

Juan C. Andrade joined Everest Re Group Ltd. as chief operating officer in September 2019 and became CEO of the Bermuda-based insurer and reinsurer on Jan. 1, 2020. Starting in the industry as an underwriter, he has held senior positions at several commercial and personal lines insurers and worked on domestic US and international business. Prior to joining Everest Re, I have headed Chubb Ltd.’s international property/casualty business. Recently, Mr. Andrade spoke with Business Insurance Editor Gavin Souter on Everest’s strategy and the outlook for the industry. Edited exceptions follow.

Q: Everest made a big play into the insurance sector by expanding its primary operations about seven years ago. What is the business mix of Everest today?

A: It’s about building a broadly diversified group, and diversification is especially important to me. It’s by geography, it’s by line of business, but it’s also within different industries, insurance and reinsurance. We finished last year roughly at about 70% reinsurance and 30% insurance.

Q: Are you expecting that to be the right proportion going forward, or are you looking to continue to grow the insurance business?

A: We’re the seventh-largest reinsurer in the world and we still see a lot of opportunity on the reinsurance side of things, but it’s also a function of the numbers. If you look at the available market opportunity in reinsurance, it’s about $400 billion; if you look at the available opportunity in commercial property/casualty, it’s $800 billion; and we finished last year roughly with $4 billion as a primary carrier. So, we definitely see headroom and will continue to grow the primary side while being able to maintain the preeminence of our franchise on the reinsurance side of things.

I do see more balance as we go forward over time, but I have been careful not to put a specific line in the sand as to what that mix of business ought to be because I deeply care about technical underwriting profit and profitability, so a lot of it will be what the market bears and what the opportunity is in front of us. But you will see better balance between the two divisions.

Q: Is there any particular area where you would see more opportunity going forward?

A: I see opportunity in both insurance and reinsurance in different lines of business. We have been very successful on the primary side, particularly in the long-tail lines — excess casualty, primary casualty — also in D&O and then some of the true specialties, such as political risk, trade credit, surety.

It’s similar on the reinsurance side. One of the things that we have been trying to do is de-risk the company from property cat. Last year, one of the most important things that we did as a firm was create a risk appetite that we felt comfortable trading in for our company. We still see opportunity in property cat, but we’re a lot more focused on optimizing economic returns on that.

At the same time, we have benefited from the primary improvement in the casualty lines. Rates have been up, limits have been down, terms have been tighter, so for us reinsurance casualty has been a successful line of business.

Q: Inflation is a major concern for many companies. What effect is that having on insurance and reinsurance markets?

A: We have a number of things hitting all of us within the economy right now, whether it’s inflation, social inflation, the ongoing pandemic. Inflation is the one that takes more of my attention these days.

The question in my mind is: “How high does it get and for how long?” And the follow-up question to that is “How much above your expectations in pricing does that take place?” That’s what all of us in the insurance and reinsurance industry are looking at right now.

The impact is not the same on all lines of business. Some lines of business are more tied to the CPI index, other lines of business are not. There’s built-in inflation hedges in certain lines, for instance, insured values ​​of property. If values ​​go up, so does the premium associated with it.

We think about it quite a bit and we make sure that we stay on top of our loss trend selects, but ultimately it really is going to be a question of how high it gets and for how long.

Q: You mentioned social inflation. Did the court closures during the pandemic affect that trend?

A: You definitely saw a pause with the backlogs in courts, and particularly during 2020 there was more interest by plaintiff attorneys to try to settle things out of court, more for cash flow reasons.

There’s probably still a backlog in the courts; it hasn’t really worked its way through the system and so that’s something obviously that we keep our eye on. There are certainly verdicts out there, particularly with commercial auto, that the industry keeps an eye on as well, but I would say social inflation is something that we’ve come to see as more of a constant than anything else. How we deal with it, frankly, is by pricing some of that into our loss trends.

Q: Is the increase in prices over the past four years at pace with social inflation?

A: I think it is. What we have seen really since 2018 or so is that rate has been in excess of trend and that’s been good. I also see that pricing has been moderating some, particularly in the past year, but in my mind that’s also a sign that more lines are getting to pricing adequacy. But, yes, I do believe that there’s been a rate in excess of trend over this period of time and that certainly helps deal with social inflation and those kinds of things.

Q: How do you view the recent increases in interest rates?

A: Rising interest rates should be good for the investment portfolio, particularly for companies that have assets and liabilities matched. In our case, 20% of our portfolio is on a floating rate, so we’re going to be able to capture the benefit of those rising rates faster; so from that perspective that’s good.

Rising rates will also have an impact on our bond portfolios, and bond portfolios, obviously, are sort of at the core of what insurers and reinsurers do.

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