Monte Carlo Rendezvous

Executives at this year's Reinsurance Rendez-Vous in Monte Carlo got away from talking about the nat/cat disasters of 2010 and 2011, and focused instead on number crunching.

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

MONTE CARLO, MONACO -- What a difference a year makes. Last September the focus of the annual Reinsurance Rendez-Vous in Monte Carlo inevitably centered on the series of devastating natural catastrophes occurring in various parts of the world during 2010 and 2011, as well as the industry's resilience in the face of resulting losses.

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America's ruined harvest has of course been discussed at this year's gathering, although industry executives have been reluctant to allocate a figure to the cost, which they say will only become clearer towards the end of the year. Torsten Jerrowek, reinsurance committee chairman at Munich Re said the German reinsurer's estimate last month that the drought conditions would cost the group about $200 million had not been revised since. Indeed, the event is regarded as something of a business opportunity by major reinsurers; for example Swiss Re announcing that agricultural insurance is one of five growth markets that the group has identified for the years ahead. Chief executive Michael Liès, was able to claim social responsibility kudos for the group as Swiss Re is working on a scheme with the Vietnamese government to provide the country's farmers with a cost-effective insurance scheme to mitigate the effects of poor harvests.

Another recent event, Hurricane Isaac is evidently only a minor headache for the industry. Even the more pessimistic loss estimates suggest a two-digit rather than three-digit loss figure, putting the event on a par with Hurricane Gustav in 2008.

Also a topic of discussion has been the late August deal that saw Validus acquire Flagstone for $625 million. There has been speculation as to whether other contenders also eyed up Flagstone and whether the industry's major names might be considering a return to the acquisition trail.

Meager Returns

The attention of the industry, however, has turned more to the withering of investment returns and the low interest rate environment on both sides of the Atlantic. Although they might not proclaim the fact too loudly, reinsurers would generally welcome an uptick in inflation if rates edged higher in response.

Traditionally the Rendez-Vous commences with an overview of recent developments from broking giants Guy Carpenter and Aon Benfield. Both presentations focused on how paltry rates from government bonds are continuing to stimulate investor interest in the reinsurance sector.

Alex Moczarski, president and CEO of Guy Carpenter, noted that five years on from the first emergence of the credit crunch, global reinsurance capacity stood at an all-time record level despite the economic crisis. Aon Benfield Analytics calculated a figure of $480 billion midway through 2012; up $25 billion or 5 percent from the end of 2011.

As Michael O'Halleran, executive chairman of Aon Benfield observed, despite two years of substantial nat/cat losses, supply continues to outstrip demand. A sentiment expressed in previous years -- that it will take a major event resulting in a loss for the industry topping $60 billion -- continues to hold true.

"Continuing reserve releases are helping reinsurers' results, but these are slowing down," he added. "And we are in a pathetic investment returns market, which is going to get even worse before it gets better. That means that the industry has to be particularly astute in matching its liabilities with its investments."

Despite the excess of capacity, the industry's big guns maintain that modest rate increases are still in the cards for January 1, 2013 renewals.

"Conditions might indicate a softening of the market, but low interest rates and economic uncertainty means that underwriters have remained disciplined in their approach," said Hannover Re's CEO Ulrich Wallin. "So reinsurers have not made attempts to increase their market share through discounting."

September 11, 2012

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