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By GRAHAM BUCK, who covers European risk management issues

MONTE CARLO---This year's Rendez-Vous de Septembre in Monte Carlo marks the first anniversary of the formation of the Global Reinsurance Forum. Launched in 2009 by 10 major reinsurers--Gen Re, Hannover Re, Lloyd's, Munich Re, Partner Re, RGA, Scor, Swiss Re, Toa Re, Transatlantic Re and XL Capital--the GRF aims to be a lobby group engaged in shaping international policy and regulatory issues.

"The GRF aims to promote a stable, innovative and competitive reinsurance market on a worldwide basis--that is it!" he declared. Its first year had been marked by progress in promoting the role of reinsurance as a financial shock absorber to both politicians and regulators.

"Regulators need to recognize the particulars of the reinsurance business," added Patrick Thiele, chief executive of Partner Re. "We are the last stop on the risk chain--just look at Chile."

The latest estimate for last February's earthquake, according to the GRF, is that total economic losses stand at $30 billion, while insured losses account for up to one-third. Estimates are that global reinsurers picked up the tab for $8 billion to $12 billion of that.

GRF's lineup is apparently set to change, with reports suggesting that Gen Re may depart as it does not share the opposition of its fellow members to the so-called Neal Bill, which seeks to end the practice of U.S. insurers and captives avoiding U.S. tax on excess reinsurance premiums paid to offshore affiliates for U.S. risks. RenaissanceRe is slated to be its replacement.

TAXES AND THE ALLURE OF ZURICH

With signs that traditional reinsurance hubs such as Bermuda and London may have to fight harder to retain their premier positions, attendees at this year's Rendez-Vous have considered the merits of new challengers such as Zurich and Dublin. The Swiss city in particular is fast strengthening its credentials as "the new Bermuda."

Ratings agencies such as Standard & Poor's have suggested that the island nation could be adversely affected by planned U.S. tax changes and the sophistication of some European regulatory systems. General consensus appears to be that Bermuda will remain a key reinsurance center, despite a trickle of defections, provided that there is no major deterioration in its favorable tax and political environments.

Interestingly, among those who maintain a positive outlook for Bermuda is Flagstone Re's chief executive, David Brown, despite the group transferring its corporate domicile to Luxembourg over the summer. He cited the island's "critical mass" of capital and brokers and also noted that changes such as the introduction of the Bermuda Solvency Capital Requirement will enable it to achieve equivalence, or mutual recognition status, with Europe's Solvency II regime.

London must also do more to emphasize its strengths, said Gavin Phillips, London insurance market leader at PricewaterhouseCoopers.

"Zurich is undoubtedly an attractive business center, easily commutable from the U.K., with a good pool of talent and offering a favorable tax and regulatory regime," he observed. "If another major loss was, say, to create a 'Class of 2012,' they might well choose to set up there.

"The London Market has definitely become more efficient," he added. "It's much clearer about what it wants to do and how it intends to achieve its goals--but that's not to say that it's yet functioning at optimal efficiency."

He cited as a sign of changing times the announcement earlier this month that the Lloyd's of London market is testing iPads as replacements for the paper slips traditionally used by brokers and underwriters for transactions.

DELUSIONAL

As the Rendez-Vous concluded, a distinct difference of opinion continued to exist on whether current reinsurance pricing levels are still adequate--the line taken by industry giants such as Swiss Re and Hannover Re. Or is the industry simply fooling itself, as argued by Flagstone Re's Brown.

"The industry has a strong track record of deluding itself, and that is particularly the case in casualty business," he declared. "It isn't adequately priced. It is 30 percent off what it was four years ago and the combined ratio isn't any better."

September 16, 2010

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