Canopius: A ‘virtual start-up’ in a reinsurance world where start-ups are over

One of the highs of the 2023/24 hard market was that reinsurance start-ups ended.

But even if it’s not a de novo start-up, Canopius Re CEO Charles Cooper said he sees his mandate to grow the company’s reinsurance business in a similar light, as a “virtual start-up”.

Cooper joined the company in mid-2023 and significant hiring has already taken place to bolster the company’s ranks in Bermuda and elsewhere, with several new senior executives due to start around the conference season.

Canopius is one of those closely watched (re)insurers that have been in expansion or start-up mode since 2020 and are expected to seek recapitalizations – either public or private sales – to provide liquidity to existing investors over the next two years. .

However, its willingness to lean more into the volatile reinsurance segment, preparing for these events as well, sets it out somewhat within this group. Peers in this camp include Aspen – which is certainly a major player in reinsurance, but that has been the case for a long time – and Inigo, which is much better known as an insurer in the London market.

Canopius Re’s business in Bermuda is expected to focus heavily on the quota business, which is perhaps closer to giving it another way to drive primary market growth.

But this is not exclusively the case, and the firm plans to build its XoL book in Bermuda in what it says will be a complementary addition to its existing Lloyd’s portfolio.

Additionally, Cooper said he believes that even in a world of increasing size of (re)insurance carriers, there are ways smaller or larger reinsurers can become relevant.

Alternate lever

Cooper acknowledged that for Canopius Re — currently $800 million in premiums — scale and competing with the big reinsurers “will not be our game.”

However, he said the firm can use its “disadvantage to its advantage” in that “we’re small, but we’re also nimble.”

He added: “Leverage works both ways. We may not have leverage against buyers, but the same is true in the sense that we will not use positions against buyers when we are trying to write business.”

But while Canopius Re will be selective about the reinsurance programs it supports, Cooper said that where it does participate, the company wants to make sure they’re relevant.

“We don’t want to just fill out forms. We don’t want to be the last half point in placing a giant cat – we’d rather try to be somewhat relevant to how we trade a relatively limited number of reasonably sized trades – for our company.”

Building in a market in transition

Asked how difficult it would be for Canopius to continue to grow in reinsurance as tough post-Hurricane Ian markets take hold, Cooper said he believes a few key trends will keep the momentum going.

As for the property, he said the new demand would continue for at least a few years, if not “in perpetuity.”

“It must (continue to rise) because of the combined impact of inflation, increasing exposure and the changing danger (of) climate change.”

Prices may come under pressure as supply recovers but, he said, remains adequate for now and additional demand should allow the company to grow its property book.

Meanwhile, the casualty rate is “really picking up again,” he added, noting that year Insurance Insider the article about crash risk fears was “about the 20th headline I’ve seen in the last two weeks”.

He added: “There’s a lot of fear in the victim world, so there’s a lot to play with there.”

Finally, in specialty reinsurance, the growing cyber and agricultural markets are two key segments that Canopius is targeting for continued expansion, as it already has more than $80 million in premium in an agricultural book written from singapore.

“It’s going to continue to grow just based on the impact of climate change right now,” Cooper said. “The rainfall is quite remarkable, in terms of places that have been dry for years now experiencing floods like (what) happened in Dubai.”

Overall, the former Axa XL reinsurance CEO, who experienced the impact of M&A when Axa acquired XL Catlin, sees M&A activity as a driver of opportunity.

Consolidation of large insurers, which can provide efficiencies in reinsurance, is a negative for their reinsurers. But on the other side of the coin, as some reinsurers get bigger, this is causing buyers to reconsider their counterparty concentration risk and look to create further diversification in their panels, a he said.

“This also creates opportunities for smaller reinsurers who want to grow and develop as we are in terms of counterparty concentration risk.”

Opportunities and risks

Climate change is the issue that Cooper pointed to as the biggest opportunity for reinsurers, both in terms of the need to protect property and, more generally, the transition to climate change and clean energy.

However, clean energy developers cannot expect reinsurers to “subsidize” initiatives, he said. “What we can do is try to facilitate and help and remove some of the volatility and uncertainty.”

On the other side of the opportunity topic, Cooper believes one of the biggest — “or least understood” — risks facing reinsurers is the industry’s strong capitalization levels. Excess capital, ostensibly a strength for the industry from a ratings perspective, clearly drove the weak market to an unsustainable level in the late 2010s to early 2020s.

However, two years after Ian — the latest loss that helped trigger a tougher market — Cooper said the industry “takes for granted that we’re very well capitalized right now … and that momentum in capacity and our access to capital is something we should be very careful about.”

Cracks are already showing in the lack of new investors lining up to form reinsurers, as well as in the difficulty it presents in getting US investors interested in the space.

“We have to be very careful that we’re treating our capital providers with the kind of returns they should expect for the kind of volatility we’re offering,” Cooper said.

To that end, he said that while the direction of reinsurance rates will be based on supply and demand factors, the more important factor is that reinsurers are holding on to the “grand reset” of attachment points.

“People are now using reinsurance for what it’s supposed to provide” — in other words, as a lower-cost source of capital and as protection against real risks of volatility.

“I don’t think any of this is going to change anytime soon, but the fear/greed pendulum … is swinging back from being heavy on the fear side, and people are starting to get greedy because they made a little bit of money this year.” he said. “People have short memories in this business.”