Reinsurers adopt ‘wait and see’ posture at Rendezvous

News Currents

For the first time in two years the high and mighty from the reinsurance world gathered for their annual Rendezvous in Monte Carlo without having to face the consequences of an ongoing catastrophe (Ivan in 2004 and Katrina last year). Sunny skies and warm weather, coupled with solid first half profits and the absence of natural disasters, generally produced an upbeat outlook. The atmosphere was more reminiscent of the ’90s than the 21st Century.

The 2,000 plus insurers and reinsurers from around the world who attended the 50th installment of the annual event that marks the beginning of the upcoming reinsurance treaty renewal season, therefore took advantage of the interlude to reflect on their past and evaluate the future.

Julian James, Lloyd’s director of Worldwide Markets, joined by Chairman Lord Peter Levene and Franchise Director Rolf Tolle, indicated that the event acts as a timely opportunity to re-evaluate the past year. “It gives the market a chance to look back at the past 12 months and chart the progress it has made,” he stated in an interview on the Lloyd’s Web site. “When you look back to last year, we were still coming to terms with Hurricane Katrina and working on the issue of process reform.”

Swiss Re took the opportunity in press briefing on Sept. 11 to highlight its positive first half results, with nary a word about the date’s significance. For the future Swiss Re noted that “demand for cat cover has been growing by almost 10 percent annually, more than most other lines of business.” As a result “significant portions of the peak scenarios are increasingly passed on to the capital markets (e.g. ILS, ILW, sidecars).” It also indicated that “investors (and rating agencies) expect risk adequate and stable returns,” and that the “finance industry is confronted with increased volatility, more sophisticated risks and demand for increased capacity.”

Underwriting profits

Munich Re’s Chairman of the Board of Management Nikolaus von Bomhard at another press conference stressed the Group’s ongoing commitment to maintaining underwriting profits. Munich Re “stands by its proven principle of writing business only at risk-adequate prices, terms and conditions,” he stated. “We have satisfactorily absorbed — also in comparison with our competitors — the large losses from natural hazards events over the past two years. This is due to our consistent underwriting policy, our integrated risk management and our diversification.”

James added Lloyd’s endorsement to the sound underwriting mantra, indicating that the London market needs to maintain its discipline in the face of pressure to cut rates in areas outside of the United States. He signaled Lloyd’s September announcement of its results, noting they “have been strong.” However, he cautioned that this is a time when the industry needs “to maintain their discipline and stick with the commitments they made to the market. We have to avoid the temptation to ease that discipline.”

September comes too early

James and his colleagues noted that for the first time for many years there was no overriding issue which would dominate the discussion in Monte Carlo. “In some respects September is too early this year,” he indicated. “The market will not be able to make any cast iron decisions so early in the year because they are waiting to see what the tail end of the North Atlantic hurricane season will bring.”

Ironically the Rendezvous crowd almost seemed to miss the crisis atmosphere that has besieged the gathering in recent years. The absence of any major hurricanes, terrorist attacks or other disasters to focus on led to a wait and see attitude. At this point the hurricane threat seems to have receded. The forecasters have all lowered their previous estimates on how many storms to expect. Studies have appeared linking their diminution to everything from a resurgent El Niño to North African sandstorms. For the moment at least the reinsurance industry seems fairly confident that it will be able to keep the profits it made in the first half of the year.

That doesn’t mean they have become complacent. “Particular challenges at the moment are increasing risks from natural catastrophes and from the risk of terrorism,” von Bomhard explained. “Besides this, inflation of serious personal injury losses has been noticeable in some markets; the causes are partly of a global nature (technical and medical advances) and partly the result of national developments (impacts of reforms, changes in legal conditions, organization of healthcare systems).”

If anything the current lull has given companies like Munich Re an incentive to become even more cautious. Last year’s events also produced a more sanguine view of the industry’s reliance on cat models. “These challenges exemplify the fact that risks and loss potentials are steadily changing,” von Bomhard continued. “The permanent analysis of such changes means that models and calculations — and thus also prices, terms and conditions — have to be constantly adjusted.”

Amid all the positive news reinsurers might do well to count their blessings. The people of New Orleans, Florida and along the Gulf Coast are certainly more than pleased not to have to face yet another season of terrifying storms.

Topics Catastrophe Reinsurance Hurricane Lloyd's