Speaking at Trading Risk New York, he said that the key to establishing a sustainable market was for investors to be able to make an acceptable return over time.
“If you don’t want 2023 again, you can’t have 2016, 2017 again. People are going to want to see that you can make appropriate returns over time.”
But he added: “To succeed in any business, you have to have empathy and humility. Investors are not always going to demand 2023 rates. In two, three years’ time, there could be moderation.”
The ILS executive emphasised that “getting inflation right, getting exposure right, is super important”.
He said that insurers and reinsurers were both able to capture inflation impacts, but that “some do it extremely well, some do it extremely poorly”.
“You can see in the Hurricane Ian numbers, whether people get their exposure right,” he added.
Rettino continued that “source” factors, such as underlying rate adequacy, risk mitigation and building protection, were key to reducing uncertainty and bolstering sustainability in the ILS market.
“2017 was instructive – Hurricane Harvey is the perfect example. If you pave over where flood water collects, the water still collects. Harvey could have been avoided,” he said.
Addressing the situation in California, Rettino said that carriers’ exits were “predictable”.
“If you tell people you can’t raise rates and charge appropriate terms and conditions, then it is predictable that after several years they will pull out,” he said.
He continued that neither insurers, reinsurers nor ILS firms were able “to go it alone to have sustainable margins. The great promise of ILS was that it would dampen volatility. But we can’t control what the path will be”.
Rettino noted that endowments and hedge funds had entered the ILS space in 2023 “more significantly than for a long time”, and that the market had become “very diverse”.
Hedge fund capital had been “a little less” active in the cat bond space, but there had been some hedge fund as well as endowment capital flowing into the market.
The Elementum executive also addressed the challenge of a capacity shortfall for severe convective storm, saying that many ILS investors had limited the perils they would cover, and that coupled with significantly raised retentions, “a lot of it fell back onto insurance company balance sheets”.
He added that the attritional loss performance of a sponsor was “a good indicator of how they would perform in a cat event”.
