By Graham Buck
MONTE CARLO, MONACO -- A time-honored tradition of the annual reinsurance Rendez-Vous in Monte Carlo is the effort by many companies to talk rates higher, ahead of the Jan. 1 renewals and preceding negotiations held in the German spa town of Baden Baden in late October. These are countered by brokers' and intermediaries' efforts to talk them lower.
This year has proved no exception. The big names of the reinsurance world such as Swiss Re and Munich Re acknowledge that the continuing influx of capital into the market means that supply continues to exceed demand. However, they maintain that underwriting discipline remains strong in the wake of two years of heavy natural catastrophe losses in 2010 and 2011, and that the forthcoming season will be marked by stable or slightly firmer rates.
Hannover Re's chairman Ulrich Wallin, who can point to the group's recent upgrade by A.M. Best Co. Inc. from A to A+, pointed to rate increases earlier this year that came on top of those imposed at the beginning of 2012. Despite the industry's steadily broadening capital bases and the entrance of hedge funds into the reinsurance market, he believes that the firmer trend will be maintained at year-end.
"I don't believe that softening will happen, partly because of the poor investment environment," Wallin said. "Market discipline will be sustained. Hannover Re certainly won't buy market share."
A similar view was expressed by David Cash, CEO of Bermuda-based Endurance Specialty Holdings ? a member of the 'Class of 2001' ? who confidently predicted that a moderate but sustainable hardening of the U.S. casualty insurance and reinsurance market is now under way.
He said there is a common understanding, which has spread to buyers, that a prolonged period of steady decreases coupled with four years of low interest rates is at an end. The next two to four years will be marked by a moderate firming of rates in both markets.
Yet Paddy Jago, president of Willis Re and chairman of Willis Re U.S., was dismissive of projections for the forthcoming season that are a feature of the Rendez-Vous. He is equally confident that Jan. 1 2013 renewals will be marked by further decreases of between 2.5 percent and 10 percent for U.S. business. Jago also summarized the total bill of $108 billion for insured natural catastrophe losses in 2011 as "more of a nose bleed or a sneeze for reinsurers and certainly not an arm or leg being ripped off."
A Touch of Perspective
Asked about the relatively brief attention paid to U.S. crop losses at this year's sessions in Monte Carlo, Jago believes that the total loss will be well in excess of $5 billion. While "tolerable" for the industry, crop losses are likely to have a heavy impact on individual insurers. "I don't think that we really understand this loss fully, which will be bigger than many insurers and reinsurers either realize or are prepared to admit," he said.
Endurance entered the U.S. specialty crop insurance business in 2007 with the acquisition of ARMtech Insurance Services. Cash said that the business has generally provided reasonable returns, with 2010 proving highly profitable thanks to a "fantastic" harvest and 2011 a break-even year because of the severe drought in Texas. For this year, Endurance is expecting a gross loss ratio of 150 percent and net loss ratio of around 110 percent on the business.
However, Cash said that alarmist media reports of the harvest being wiped out and a replay of 1930s Dust Bowl scenes are highly exaggerated. "There have been more recent poor years, such as 1988," he points out. "Federal government predictions point to yield being down by 15 percent to 20 percent rather than zero ? although this will still be enough to test the commodities market."
September 18, 2012
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