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By GRAHAM BUCK, a London-based writer covering European risk management issues

In the aftermath of last September's near-meltdown of the financial services sector, reports surfaced that the annual reinsurance Rendez-Vous de Septembre 2009 might transfer this year to an alternative venue. Monte Carlo, the venue for the gathering for more than 50 years, was just a little too ritzy in the new age of austerity, it was suggested, and a less glamorous setting might prove more appropriate.

Gauging the mood at this year's Rendez-Vous may prove more complicated than usual. A report issued this week by A.M. Best Co. suggested that a broad recovery in the global reinsurance market hasn't yet got underway and rate increases have generally been modest.

Although U.S. accounts with catastrophe exposures typically incurred a 15 percent hike for July 1 P/C renewals, in other parts of the world, single-digit increases were the norm.

Best commented that some of the players with the "technical discipline and market profile" are attempting to drive rates higher and profess they are willing to sacrifice market share in order to do so. At the same time, competitors whose fortunes and ratings have been more severely dented by the financial crisis are still under pressure to keep rates unchanged or even to trim them in order to keep their customers loyal.

TRIPLE WHAMMY EASING UP?

Reinsurers have been hit by the triple whammy of low interest rates--U.K. base rate of 0.5 percent is by far the lowest since the Bank of England was set up in 1694--hefty investment losses and meager investment returns. At the same time, alternative capacity has undergone a drought as most hedge funds and private equity investors are short of funds.

Despite this, a separate report from reinsurance intermediary Guy Carpenter & Co. paints a generally more upbeat picture. It comments that reinsurers' capital positions have bounced back strongly since the onset of the financial crisis and from the losses incurred last year.

"Though it will take time to redress fully the fall in shareholder equity we saw in 2008, stability in the markets has given reinsurers greater flexibility and opened several options unthinkable nine months ago, including share buybacks, dividends and even maintaining a bit of extra capital as a cushion," stated Christopher Klein, the group's global head of business intelligence.

There is also something of a mixed picture regarding the fortunes of the reinsurance market's heavyweights. Swiss Re disappointed the markets earlier this month when it revealed that write-downs on its $155.5 billion investment portfolio had offset strong underwriting earnings and pushed it into a second-quarter loss. While Munich Re's figures were considerably better, the group's veteran chairman, Nikolaus von Bomhard, said that its July treaty renewals showed a price increases averaging 4.4 percent.

He said that Munich Re was "not unhappy" with the level but felt that "in a crisis like this one ... the market should shift more quickly into a hardening mode." However, he also admitted that there was fairly limited scope for pushing through more substantial increases.

SPV BUZZ

The Rendez-Vous may also be marked by a fresh buzz over the reinsurance special purpose vehicles dubbed "sidecars," which were the focus of a flurry of activity in the months after hurricane Katrina four years ago.

More recently, this area of the market had gone fairly quiet, but in June Bermuda's Renaissance Re launched Timicuan Reinsurance II, a $60 million sidecar for Florida's property reinsurance market.

Earlier this week two Lloyd's insurers announced sidecar plans: Beazley aims to create a special purpose syndicate as a sidecar to its treaty reinsurance business, while Amlin intends to expand its existing one, Syndicate 6106. All in all, delegates in Monaco will have plenty to discuss.

August 28, 2009

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