catlin re release – nr.2/2012

RELEASE Special Edition 2012 | Catl in Re Switzer land 01

Special Edition 2012 — Bulletin of Catlin Re Switzerland

The Catlin Spring Event – a review

02 RELEASE Special Edition 2012 | Catl in Re Switzer land

Editorial

Dear Readers

On 31 May we celebrated our first Catlin Spring Event in Zurich. The get-together with clients and business partners proved to be a great success. Some 120 people attended the afternoon conference at the Park Hyatt Hotel, with over 160 guests joining us later that evening for a celebration at our offices.

I would like to take this opportunity to express our gratitude to everybody who joined us for our Spring Event. We all felt very much inspired by the many interesting conversations we had at the event and hugely enjoyed your company.

Our afternoon conference examined the current issues facing the insurance industry. The presentations and more pictures are available at www.catlinreswitzerland.com. The keynote speech on balancing opportunities, risk and uncertainties in our industry was delivered by John H. Fitzpatrick, who was recently appointed Secretary General and Managing Director of the Geneva Association, the think tank of the insurance industry. His presentation was followed by a panel discussion on the outlook for the European insurance industry with senior executives from EIOPA, Zurich Insurance Group, Aon Benfield and Catlin Re.

Once again, the Catlin team would like to wholeheartedly thank everybody for joining us at our Catlin Spring Event. We are looking forward meeting you again in the hopefully not too distant future.

Yours

Peter SchmidtCEO, Catlin Re Switzerland


Resolving a paradox: The value of a mid-sized reinsurerIn recent years the Continental European reinsurance market has witnessed over-capacity, declining prices and low profitability. Still, roughly 30 reinsurers have been established in Zurich in the last eight years, mostly targeting the Continental European markets.

Originating predominantly from Bermuda and the United Kingdom, the newcomers were motivated by strategic considerations such as accessing a marketplace with distinctly different features and client attitudes. They aimed to move closer to their clients, and many chose Zurich as their base for its access to expertise and talent, reliable regulation and its quality of life.

The underlying reasons for this success are twofold:Cedants seem to welcome a wider spectrum of reinsurers. One cause for this behaviour might be their experience since the 2008 financial crisis. With the Lehman Brothers default, cedants realised that neither size nor reputation is a safeguard against fatal mistakes. The financial crisis made apparent that a widely diversified book of reinsurers has strong merits. Incoming Solvency II regulation reinforces this trend by incentivising a diversified panel. As a result, cedants deploy even more sophisticated capital management strategies.

The reinsurance sector has also become more clearly segmented. Driven by investor demand, reinsurers have to pursue new avenues to improve their historically low pricetobook ratios. As predictable investment returns have disappeared, most reinsurers are subject to a strict underwriting discipline.

The consequence is a potential erosion of customary market loyalties as reinsurance capacity is targeted towards the most profitable return. In particular the larger players have become more opportunistic in their client orientation, while the midsized players try to provide tailored solutions, invest in durable client relationships and continue to follow their cedants’ fortunes.

Ultimately, these trends might lead to a more volatile and erratic marketplace as capacity flocks to where the highest price is assumed, therefore accelerating cyclicality and potentially undermining the market’s raison d’être as an economic shock absorber.

To differentiate itself from its competitors, Catlin Re pursues a strong client focus and service orientation. It empowers its underwriting teams who have the expertise and authority to make swift decisions for the benefit of the company and its clients.

“Many of the newcomers experienced an unexpected receptiveness from the market that business plans did not suggest initially.”

The presentations and more pictures are available at www.catlinreswitzerland.com


John H. Fitzpatrick,Chairman Oak Street Management

A global economic and insurance industry outlook

The reinsurance sector maintains a strong capital position. However, pressure on both sides of reinsurers’ balance sheets persists. The industry has not yet been able to translate low investment income into rising underwriting rates. In fact, not even last year’s dramatic insurance claims triggered a sustained price increase.

Firstly, deflation has become a likely economic scenario for the mature markets. Alternatively, a rapid shift from low or no growth to a sudden surge, widely disparate across regions, is still likely too. To insurers these potential outcomes have very different implications, both on the underwriting and on the asset side of the business.

Secondly, GDP and ultimately also insurance growth is shifting from the Western hemisphere to Asia. Insurers need to consider their products and portfolios as well as their organisational setup, but also be aware of the (largely) unmodelled risks seeking reinsurance cover in the emerging markets.

Thirdly, with last year’s natural catastrophes predominately in Asia/Pacific, risk managers need to revisit their diversification strategies. They have to understand that what used to be considered nonpeak zones may cause losses just as grave as those typically expected from the classical four peakrisks.

Fourthly, we are experiencing a technological revolution with innovations penetrating markets ever more rapidly. To insurers this will mean further opportunities to insure new products and value chains, but it will also bring further risks as some of these products and processes are still unknown.

Finally, there is a risk that the many regulatory activities to tighten control on the financial services sector might effectively strangle business opportunities. The industry still has to decide a coordinated and consistent response to these challenges.

Ultimately each business has to decide which scenarios it perceives as most likely and how it will react if the alternative occurs. If management is able to capture the upsides in this highly challenging environment, it may reflect favourably on the industry – also in terms of its valuation by investors.

“Looking ahead, the industry has to pre-pare for a number of scenarios with major implications for the underwriting and the asset side of the business.”

So far, the global reinsurance industry has withstood the global financial crisis well. However, as the crisis continues to unfold, the industry has to identify its options for growth if it is to enhance historically low price-to-book valuations.

The presentations and more pictures are available at www.catlinreswitzerland.com


Because meetinga clientpersonallystill matters.

more photos: www.catlinreswitzerland.com


In respect of Solvency II, Daniela Rode, Director of Regulations at the European Insurance and Occupational Pensions Authority (EIOPA), stressed the importance of Pillar II: “Capital alone is not sufficient to ensure an insurer’s resilience to unexpected shocks. It needs to be complemented by rigorous yet manageable risk management and governance frameworks. This is one of the key lessons from the financial crisis.” Despite the significant cost associated with preparing for Solvency II the panel agreed that the new regulatory framework is fundamentally on track to benefit Europe’s insurers and their customers. Alan Fairhead, Chief Underwriting Officer, General Insurance, Europe, Zurich Insurance Company, said: “Solvency II will make the huge differences in capital intensity between the various lines of business more transparent. This should improve the efficiency of capital allocation and, ultimately, the provision of insurance cover.”

The prospects for the European reinsurance marketplace were another area of the discussion, which was moderated by KaiUwe Schanz, Chairman and Principal Partner at Dr. Schanz, Alms & Company. The panel agreed that there is more room for mediumsized players, a trend facilitated by the increasing role of reinsurance brokers, a position that JanOliver Thofern, Chairman & CEO of Aon Benfield attributed to “a more complex risk landscape, enhanced inhouse analytical capabilities and customers’ quest for efficiency, transparency and the best price.

Markus Eugster, Underwriting Director at Catlin Re Switzerland, offered another reason for the growing appeal of mediumsized reinsurers: “An empowered team which is able to respond to clients in a professional and efficient way, based on a solid technical understanding.”

The panel also discussed ways of generating growth in Europe’s mature insurance markets. Various opportunities were explored, ranging from product innovation to nontraditional distribution channels. But some options are surprisingly straightforward: “One simple piece of advice to European insurers seeking growth,” said Alan Fairhead: “Focus on what your customers really want.”

A strategic outlook for the European insurance industry The panel debated the broad spectrum of challenges that the insurance industry is facing, ranging from economic and political volatility, market maturity or even saturation, rapidly changing customer needs to various unfolding regulatory initiatives.

From left to right: John H. Fitzpatrick, Markus Eugster, Jan-Oliver Thofern, Alan Fairhead, Daniela Rode, Kai-Uwe Schanz

Peter SchmidtChief Executive Officer

Tel: +41 43 268 84 [email protected]

Andrés Esteban Deputy Branch ManagerMadrid


Daniel Gantner Underwriting DirectorZurich


Ortwin Kroeninger Senior Underwriter Cologne

Tel: +49 221 1688 [email protected]

Julio SáezBranch ManagerMadrid


Martin HochstrasserUnderwriting DirectorZurich


Jean-Pierre PortmannUnderwriting DirectorZurich

Tel: +41 43 268 84 33jean[email protected]

Dorothee Therstappen UnderwriterCologne


Stefanie Koch UnderwriterZurich


Maria Elena Saccotelli Deputy Branch ManagerRome


Toni VukadinovicUnderwriting DirectorZurich


Antonio FiengoBranch ManagerRome


Markus EugsterUnderwriting DirectorZurich


Christophe ChandlerUnderwriting DirectorZurich


Jérôme DomenichiniSenior UnderwriterZurich


Your ContactsCatlin Re SwitzerlandFeldeggstrasse 48008 ZurichSwitzerlandTel. +41 43 268 34 00

Impressum: Published by Catlin Re Switzerland / Concept & Design by agor ag, Zurich / Edited by Dr. Schanz, Alms & Company, Zurich

catlin re release – nr.2/2012

Documents

bulletin of catlin

catlin team

european insurance industry

zurich insurance group

chose zurich

diversified book of

continental european

afternoon conference