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Come Sept. 10, 2005, there will be plenty to talk about at the squeaky-clean sidewalk cafes of Monaco. Item No. 1 on the agenda is expected to be the winners and losers in the ratings game.

"For the second or third year, all eyes are going to be on the ratings agencies again," says Lewis Phillips, senior analyst with Benfield Group's industry analysis and research team. "One of the key things is the ratings agencies always produce their annual studies around about Monte Carlo time, and it seems to be a favorite time to be taking high-profile action."

In July, Munich Re said it would increase reserves at American Re by a pretax amount of $1.4 billion, net of $203 million in retrocessions to Munich Re, and would make a capital contribution of about $1.1 billion to American Re. XL Capital also announced in July an increase in net reserves in its North American Reinsurance operations of $191 million before taxes.

Last year, analysts cast their cold eyes on Converium, which sustained a downgrade from the ratings houses. In 2003, Munich Re found itself in the crosshairs of Standard & Poor's. A lower rating for reinsurers makes insurers nervous because it casts doubt on a reinsurer's ability to pay an insurer's claims.

Steve Dreyer, managing director for insurance ratings at Standard & Poor's in New York, swears the ratings houses don't release their reports to coincide with the annual pilgrimage to Monte Carlo.

"I don't have the latest-breaking downgrade to talk to you about, and those previous events were coincident with Monte Carlo," he says. "It certainly wasn't our intention to change ratings for that purpose."

Dreyer also says that as Converium and Munich Re in particular have undergone a "metamorphosis" in terms of becoming more transparent in the marketplace, and because of the beating the reinsurance industry has taken over the past year over finite-risk insurance products, he expects there might be some discussion about transparency and disclosure issues.

Before the ratings buzz and the hard market became the all-consuming topics of conversation at the Rendez-Vous, it was the Sept. 11 terrorist attacks, which struck U.S. soil just as that year's meeting was taking place, that had everyone talking.

This year, despite the London bombings, terrorism is not expected to monopolize much of the private discussion because the cost of the damage will be absorbed by the U.K. terrorism pool, Pool Re. "Property-damage costs will be fairly small, so that's not going to have a major impact," says Phillips.

Terrorism will, however, feature prominently in the public realm as Ron Pressman, CEO of GE Insurance Solutions, hosts a panel discussion titled "Facing Terrorism: A Threat to Peace, a Threat to Our Industry."

Panelists will include Joe Plumeri, CEO of Willis Group; Stephen Patrick Cain, security and risk management consultant and associate with Bryant & Associates; and Rohan Gunaratna, head of the International Centre for Political Violence and Terrorism Research at the Singapore-based Institute of Defence and Strategic Studies.

With rates leveling off, particularly in the property/casualty sector, pricing is expected to yield few surprises as buyers push for the lowest price, and sellers try to obtain the highest price.

"I have no doubt that cedents will be looking for some further price reductions, and they will get them in certain areas," says Phillips.

Pricing triggers are also expected to figure into this year's discussions, as reinsurers withhold capacity until the price of risk rises to a predetermined level. In addition, U.S. reinsurers will arrive at this year's Rendez-Vous posting a loss from underwriting in 2004, according to the latest data released by the Reinsurance Association of America.

Phillips says he expects reinsurers will go into Monte Carlo discussions with very little latitude when it comes to pricing.

"Equally, while cedents are looking to get some further price reductions with investment markets being what we call 'unhelpful,' there's a lot of pressure on reinsurer managements to keep a disciplined approach and not give away too much," he says. "Our view is that we're getting to the stage now where there isn't a lot of room for error on pricing."

With the issue uppermost in the minds of buyers and sellers--that of pricing--looking relatively stable this year, the hush-hush chitchat in the secluded rooms of the Hotel de Paris may well turn to the goings-on of the monarchy.

This year's Rendez-Vous, celebrating its 50th anniversary, is the first to take place under the leadership of Prince Albert II, the 47-year-old bachelor prince, son of the late Prince Rainier III and actress Grace Kelly.

Albert assumed the throne in July, following the death of his father, who had ruled the tiny state for 55 years. During Rainier's rule, Monte Carlo grew into a financial hub and became one of Europe's favorite tax shelters.

But in addition to harboring expensive yachts and developing a reputation as an exclusive playground for the rich, Monte Carlo and its banks are also a favorite place to hide laundered money.

Though Albert has vowed to burnish his nation's illicit image, he has confirmed reports that he fathered a child out of wedlock with an African-born flight attendant nearly two years ago, and that there was a possibility of other women coming forward with paternity claims.

CYRIL TUOHY is managing editor of Risk & Insurance®.

September 1, 2005

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