By GRAHAM BUCK, a London-based writer covering European risk management issues
MONTE CARLO--While banks have toppled like ninepins in the financial crisis and relied on government lifelines to survive, the reinsurance sector has proved far more resilient. Yet that pesky recession could still pull the rug from underneath some of the industry's more vulnerable players. That appears to be one of the few messages on which all delegates at this year's reinsurance Rendez-Vous in Monte Carlo are agreed, in what has so far been a relatively subdued session.
As more than one speaker has observed, after suffering erosion in 2008, reinsurers' capital base is looking significantly healthier this year. Shareholders' equity for the top 40 global reinsurance companies, which stood at $400 billion at the end of 2007, shrunk to $351billion by the end of last year. However, the reading for the most recent quarter showed a rebound to $372 billion, and it has since almost certainly improved further.
The absence of any significant hurricane losses so far this season, and signs that the recession is lifting, suggests that the outlook is set fair. Many of the industry's main players, such as Hannover Re, are optimistic on their profit projection for 2010--albeit adding the usual caveats on it being upset by unexpected large losses.
An upbeat Day One session at the Rendez-Vous from intermediary Guy Carpenter & Co. suggested that fears of a "capital famine" appear to be unfounded and the prospect is for a "fairly benign" renewal season.
YES, BUT ...
But not everyone is convinced. Ratings agency Moody's announced that its outlook for the reinsurance industry changed from stable to negative. Managing director Ted Collins suggested that there is simply too much capacity available, while the prospect of a sluggish recovery--or worse, a double dip in the recession--means that demand for reinsurance will slacken. There are also too many alternatives to the reinsurance sector that could prove more attractive to investors if, as seems probable, attempts to drive rates up further in 2010 come to nothing.
A capital crunch would come if another loss on the scale of Katrina occurred, as a repeat of the new capital attracted to the market back in 2005 looks unlikely. Meanwhile, as some talk of building on this year's increases, more delegates admit that prices will remain flat and possibly even soften next January.
Moody's also questioned the assumption that clients are increasingly demanding a minimum "critical size" for their reinsurers--a belief that has motivated recent consolidation in Bermuda.
Moody's own survey suggested that buyers firmly believe that "small is beautiful" and that recent mergers and acquisitions have made them appreciate the market's lesser players, which provide balance in their contracts.
However, according to John Andre, group vice-president of A.M. Best's property/casualty division, recent deals such as Validus Re's acquisition of its Bermuda competitor IPC Re and last June's purchase of Paris Re by PartnerRe could become less frequent in future--simply because of a shortage of suitable takeover targets.
The headline news from the Rendez-Vous at the weekend was Munich Re's announcement of a rebranding for the group. The group is dispensing with names such as Munich American Risk Partners, and the name Hartford Steam Boiler will be consigned to history in 2011.
All of the group's reinsurance units will be combined under the Munich Re name, and its specialized primary insurance units will go under the title of Munich Re Risk Solutions.
Group board member Torsten Jeworrek said that the new Munich Re is repositioning itself in the market as a "service reinsurer"; a role that will see it as leader of major programs and innovator of cover for new and complex risks.
Also announced was the formation of the Global Reinsurance Forum (GRF), an independent forum that aims to "promote a stable, innovative and competitive reinsurance market environment on a worldwide basis." Under the chairmanship of Scor's CEO Denis Kessler, the GRF will speak for the industry on regulatory, legal, tax and accounting developments in dealings with international organizations. The GRF's founder members are Gen re, Hannover Re, Lloyd's, Munich Re, Partner Re, RGA, Scor, Swiss Re, Toa Re, Transatlantic Re and XL Capital.
Graham Buck, our London correspondent, is in Monte Carlo this week covering the Rendez-Vous de Septembre,
the annual meeting between reinsurers and reinsurance brokers.
September 8, 2009
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