h b r t e u f o y r g n i y g n a e i r s b jeworrek ... rv rep day1.pdf · rendez-vous reporter:...

RENDEZ-VOUS REPORTER: SUNDAY SEPTEMBER 8 2019 www.reactionsnet.com | 1

RENDEZ-VOUS REPORTER DAY 1: SUNDAY SEPTEMBER 8 2019

Contents

BRIN

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T H E R E N D E Z - V O U S D

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MB

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5 Y

EARSSince 1994

The Rendez-Vous Reporter revisited ...............4

Hartigan: Loss creep a systemic issue ....................6

Convex keeps Lloyd’s guessing ..8

Socially conscious investing ...........10

Monte Carlo memories ..........12

‘Fairly benign’ renewal season ahead ................14

KBRA: The challenger cometh ..............18

Ogden rate to drive up prices ...20

New links in the risk chain ...........22

Underwriter to the stars ..................24

‘Exciting’ market shift fuelled by ILS ................28

Brit’s Sussex Capital targets growth ..............28

The trouble with advanced analytics ............30

Jeworrek: Discipline yields results

Firming rates and improving terms and conditions will characterise the 1

January 2020 renewals as a result of a widespread shift toward great discipline in the reinsurance sector, says Torsten Jeworrek, member of the board of management and CEO, Reinsurance at Munich Re.

As the 2019 Rendez-Vous de Septembre in Monte Carlo kicks off, Jeworrek predicts that “the momentum of price increases and tightening conditions would carry on through the 1/1 renewals.” The past 12 months have offered signs that the traditional reinsurance cycle is still a feature of the market, he adds, but price corrections are far less global than in the past and more dependent on other factors.

“Loss versus non-loss affected is an important factor, but clients also consider capital management as a significant motivation,” he notes.

Nevertheless, major loss events in 2017 and 2018 – including Hurricanes Harvey, Irma and Maria, two seasons of record-breaking California wildfires and Cyclone Jebi in Japan – have impacted the collateralised retrocession market.

Investors in retro ILS funds have been more cautious about deploying capital following these cat losses, some of which have

been characterised by loss creep and capital being tied up in side pockets.

“The challenges within the industry have not changed, as the cycle is still alive, but with much more focus on certain lines of business, the region and even more, the overall client relationship,” Jeworrek explains. “Underwriting discipline and appropriate technical pricing are key. Therefore, we are deeply analysing the underlying business, also via data analytics.”

From a buying-strategy perspective, cedants are looking for more customised solutions, he says, designed to support long-term growth ambitions, to balance out volatility in their balance sheets and to optimise

portfolio composition, among other things.

“In these days of changing markets with ever-more-complex risks and the need to deploy capital most efficiently, buying reinsurance is moving from a pure risk-transfer instrument to a corporate finance tool,” says Jeworrek. “We are in constant dialogue with cedants to develop integrated concepts – from traditional reinsurance to managing large complex risks and balance-sheet optimisation.”

Size still mattersAccording to Jeworrek, size and diversification will continue to offer a competitive advantage: “We are convinced that bigger

Continued on page 3

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2 | www.reactionsnet.com RENDEZ-VOUS REPORTER: SUNDAY SEPTEMBER 8 2019

SWISS RE

In which lines of business do you currently see the most opportunity in P&C solutions, and why? In general, commercial lines are catching up with personal lines insurance with respect to data being available in quality across a higher number of transactions. This opens analytics opportunities in formerly large and stable commercial lines portfolios, e.g. in property. In the natural catastrophe business, the growth of platforms and parametric offerings in general are a real opportunity. Analytics platforms and product suites also play a big role in the fast-growing cyber market and in motor, where telematics and ADAS risk assessment technology transform the space. And there’s always automation and efficiency as a topic to enable better growth across all lines of business, something we are catering to with our SwiftRe solution, for example. SwiftRe is an online risk placement, claims and accounting platform which helps our clients reduce their administration costs. Just to name a few key areas where we prioritise.

Geopolitically speaking, what trends concern you the most right now that might create further exposure for your clients? What developments bear more attention? As a globally operating re/insurance company, Swiss Re is exposed to political risks and crisis situations across the globe. Events such as war, terrorism, nationalisations, or restrictions on the free flow of capital or free trade can generate losses in insurance underwriting businesses, affect the value of investment portfolios or reduce the ability of insurers to operate, both regarding people and processes, but also in things like capitalisation of subsidiaries and officially blocked or de-facto encumbered access to markets. For political developments of material relevance, Swiss Re develops risk scenarios to assess their impact on business. The US-China trade dispute,

for example, is certainly an area we are watching: if there were further escalation, we believe global premium growth could be impacted. Brexit would be another prime example where all insurers are watching.

In terms of claims, which P&C lines present the biggest challenge at the moment, and do those lines warrant more appropriate pricing for those risks? We saw developing claims from natural catastrophes, for example Typhoon Jebi, but also losses from floods, hail and storm losses in Australia, as well as losses stemming from the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX fleet. We also saw a reasonably high number of man-made losses. Renewals also showed the market’s reaction to these developments, where for example in July Swiss Re’s volumes increased by 17%, of which 2% was driven by price increases due to updated and more conservative loss assumptions.

Better risk selection can be achieved by leveraging data, but where does data governance some in, to ensure the data you want to employ is of optimal use? One key area is data and processes moving into the Cloud, as a result of widespread digitalisation efforts and efficiency drives. Swiss Re is actively involved in the regulatory discussions around digitalisation, and we for example welcome EIOPA’s initiative to develop EU-wide guidelines on outsourcing to the Cloud and are planning to provide input to the ongoing public consultation process. Regarding analytics that are run on such data, we also closely monitor the EU Commission’s High Level Expert Group’s activities on data ethics and for example are looking to participate in its pilot exercise to test how the trustworthy AI

assessment list could be implemented in practice.

Cyber crime is on the rise globally. What kinds of protections are clients looking for these days that they might not have, a year ago? How are their needs changing? Cyber crime is indeed on the rise, and rapidly changing in nature. We see ransomware still being a major way for criminals to monetise on their efforts. Attacks are often becoming more targeted in order to achieve a higher “return on investment”. They are targeting organisations who are most vulnerable but at the same time most likely to pay – such as municipal governments whose IT-security is usually underfunded but cannot afford to go out of business. We have seen examples of this happening, e.g. in the US. Another group of often largely unprotected victims can be SMEs. They may be tempted to think they are too small to be an interesting target.

In high need for individuals and companies remain basic security hygiene measures, such as having up-to-date patches, reliable backups, malware protection and employee awareness trainings. An additional layer of protection are then the comprehensive cyber insurance solutions. Besides protection through financial compensation, these covers offer embedded incident response

management services such as access to IT forensic specialists,

crisis management or legal expertise. With the wide-spread distribution of ransomware, companies are more and more looking to complement their cyber insurance with business

interruption protection. l

Seizing opportunityQ&A: Swiss Re’s Eric Schuh, Global Head of P&C Solutions



SUNDAY

Quotes of the day

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“When a company has a strong portfolio of

business it is often more efficient to bring on board the business or the team than [acquire]

the whole entity. … The potential for cultural differences to derail M&A deals is frequently underestimated.” Patrick Hartigan, Head of Reinsurance, Beazley

“There’s some exciting stuff going on with

the tech start-ups, but it’s tiny. The biggest brokers in the world all have teams looking at

disruption, and in my opinion they have the challenge of the supertanker model.” Steve Hearn, CEO, BGC Insurance Group

“Whether start-ups do eventually disrupt the

industry or not does not really matter. Start-ups have triggered a movement where

all insurers have upped their game to improve the products and services offered, how customers are serviced and the prices they pay for their policies.” Torsten Jeworrek, Member of the Board of Management and CEO, Reinsurance, Munich Re

“It is entirely possible to achieve both a market

rate financial return as well as a positive social outcome on an investment. There

does not need to be a trade-off between the two, and it should not be seen as a negative to strive to achieve both.” Jonathan Dean, Head of Impact Investing, AXA Investment Managers

and more diversified re/insurers will play an important role in providing coverage alongside risk expertise, despite the emergence of alternative forms of capital. Nevertheless, using capacity efficiently with the help of portfolio diversification is not only in the interest of our shareholders; it is a necessity for the whole company and all kinds of stakeholders.”

A diversified portfolio is the basis of financial strength and a resilient balance sheet, says Jeworrek. “This allows us to react to ongoing pressures and invest in innovation and data analytics to support our future business development.”

The CEO says the industry is facing many challenges along the value chain due to digitalisation and the emergence of new market players. “The sector is heavily investing in order to shape the digital developments and to offer new services to clients. In the short term, this transformation requires substantial investments in IT, innovation and data analytics capabilities, leading to efficiency increases in the future.”

Meanwhile, the role of the reinsurer continues to evolve in response to emerging risk and insurance trends. “Munich Re is involved in making emerging risks insurable or in supporting schemes in the public sector business to close the insurance gap,” says Jeworrek, pointing to the reinsurer’s participation in the Insurance Development Forum that was launched in 2016 to help build more resilient communities in parts of the world prone to natural disasters.

“From our point of view, the role of the reinsurance market is getting more and more important, if we consider the evolving market dynamics,” he says.

When asked for his thoughts on InsurTech innovation, Jeworrek adds, “Whether start-ups do eventually disrupt the industry or not does not really matter. There are start-ups looking to support or disrupt at each stage of the insurance value chain. Start-ups have triggered a movement where all insurers have upped their game to improve the products and services offered, how customers are serviced and the prices they pay for their policies. Ultimately, the end customer is the winner.” l

Continued from page 1…

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SUNDAY

The Rendez-Vous Reporter revisitedFloppy disks, 35mm cameras and no Internet: Garry Booth looks back over 25 years of the Rendez-Vous Reporter show daily.

Show dailies were unknown at insurance industry

conventions until Reactions published its first Rendez-Vous Reporter 25 years ago. Our daily paper, like the Rendez-Vous itself, has changed a lot since those far-off days.

For a start, the Reporter started as a simple four-page bulletin rather than the mini-magazine you hold today. And although Reactions conceived the idea, our co-publisher in those pioneering days was the global news agency Reuters.

At that time, before the Internet was in widespread use, Reuters was looking to expand into the global insurance industry with a dedicated newsfeed called the Reuters Insurance Briefing, or RIB. The Rendez-Vous seemed like the obvious place to market the new “piped-in” service and, paradoxically, they chose to partner with a print daily.

It’s important to remember that print still reigned in those pre-Internet days. It meant that although the insurance industry media still shipped its September magazines to the Rainier III congress centre, delegates could not easily keep up to date with breaking news from the outside world – nor from the conference itself.

So our four-page briefing, printed in Fontvieille overnight (as it still is), contained a mix of interviews from the event with wire news “grabbed” from RIB – plus sports results on the back page.

Inevitably, the Internet caught up on Reuters’ news feed and revolutionised the wider media. Goodbye sports page, for the Rendez-Vous Reporter.

It’s easy to see those days through rose-tinted specs. In fact, the production process was a lot more difficult then. We needed to use print photos that first had to be developed (at a shop!)

and then scanned. Digital cameras and smartphones had not been invented.

The lengthy pre-print preparation had to be overseen at the printworks, which had its compensation. In those days the print works was adjacent to Monaco’s picturesque boules ground, and their cheap bar served as our waiting room.

The pétanque courts are gone now, like much of old Monaco, and digitisation has streamlined the production process for the Rendez-Vous press pack. It’s just as well, because we have more to do: re/insurers and service providers have ramped up their activities year on year.

Twenty-five years ago, the only press conference was a somnolent affair, held by reluctant organisers for a handful of trade press reporters. Today most of the big industry players host a press call during which their senior executives are grilled by journalists from around the world, some of them live-reporting it.

Monte Carlo evenings were rather subdued affairs compared with the sometimes bacchanalian atmosphere engendered by the corporate entertainment nowadays. In the past, reinsurers and brokers dined more discreetly and lavish cocktail parties were rare.

Surprisingly, apart from run-off companies, service providers did not attend the Rendez-Vous even though its informal organisation

didn’t prevent them from doing so, further limiting the media’s potential to access free drinks.

Conversation around the tables of the Café de Paris has rarely wanted for stimulus, however. In my more than 25 years of attending the Rendez-Vous, something has usually happened to stir up the market ahead of renewals.

Back in 1994 we were talking about Lloyd’s reconstruction and renewal

and also the revision of Superfund (asbestos and environmental claims-funding) regulation. In 2005, nat cats dominated after Hurricane Katrina had brought biblical flooding to New Orleans. Recurring industry issues that are guaranteed to enliven Monte Carlo include well-timed financial security rating actions (a slew of them in 1999) or big industry deals like PartnerRe’s 2015 acquisition by EXOR.

But it’s Tuesday, September 11, the Rendez-Vous’ darkest day, that stands out most starkly in my memory. We had already wrapped up the front page of Wednesday’s Reporter when the news of the terror attacks started to come through. The headline of the re-made page simply said “Rendez-Vous delegates in shock.” So many delegates had friends, colleagues and co-workers in the Twin Towers. The fear, dread and mounting grief were palpable everywhere.

Like the industry itself, the Rendez-Vous recovered its composure

by the time of the next edition – and has continued to grow in stature. A more varied group of people attend, and the networking is certainly more intense. Hopefully, that’s

reflected in the coverage we’ve provided over

the last quarter of a century. l

Sunday

pubLiSherS

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published by Reactions and will be

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Editorial team

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Mobile: +44 7780 998440

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Directors

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London 2008.

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investor pLC has made every effort to

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published daily on our website:

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20 Sunday September 7 2008

Reactions Rendez-Vous Reporter


Your eyes are not deceiving

you. Yes, today is the

traditional Sunday start of

the Rendez-Vous. But those

finely sculpted, lycra encased

muscles you see before you do

not belong to a new species of

super reinsurer. Those people

are athletes or, to be more

precise, they are triathletes

and they are competing in the

Monaco Ironman 70.�.

Over �,000 iron men and

women this morning will

complete a test of endurance

that comprises a �.9km open

water swim, followed by a

90km bike ride and then a half

marathon run of 2�.�km: a

total distance of 70.� miles.

The event is important in the

world of triathlons because it

will provide 50 qualifiers for

the 2008 Ironman 70.� World

Championship in Clearwater,

Florida and �0 for the 2009

Ironman World Championship

in Kona, Hawaii.

The swim section of the race

starts on Monaco’s Larvotto

beaches while the gruelling

bike leg takes contestants

into the mountains behind

Monaco. The running course

traces the Formula � Grand

Prix track for four and a half

laps with the finish line on the

Casino square in front of the

Hotel de Paris.

Nearly all of the participants

are “age group” athletes – ages

range from �9 to 7� years with

an average of �8 years – though

there are 40 professionals

in today’s race. Two world

champion Ironmen will be

on the starting line: Chris

McCormack (Hawaii in 2007)

and Thomas Hellriegel (Hawaii

in �997). At their side, Marcel

Zamora Perez is out to defend

his double-title acquired in

2006 and 2007 at the Monaco

Ironman 70.�.

MonACo ironMAn 70.3

Racing at the Rendez-vous

Is this the bottom of the market?

© C

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the start area, the transition area and the bike park are situated in the

Larvotto beach area, between the Grimaldi Forum and the Meridien hotel.

SwiM 07:00-08:10

the swim start will be on the plage du Larvotto at 07:00. Speakers and dJs will

be on hand to give a party atmosphere and race commentary.

biKe 07:25-13:00

the cycling stage takes in the climbs and cols of the Alpes Maritimes. the

municipalities crossed by the race will resemble those planned for the

2009 tour de France. you can easily gain access at the Mont des Mules, the

Col de Guerre and the Col du Caillasson. All of these places have the most

spectacular panoramas and fast action.

run 10:00-15:30

the run will take competitors on four and a half 4.5km loops through Monaco,

including the famous Formula 1 tunnel by the old congress centre.

FiniSh Line 11:10-15:30

At the Avenue de Monte-Carlo (near the place du Casino) – this area will be

mobbed by athletes, supporters and the media with the music pumping loud.

SundaySep 12 2010

REndEz-Vous REpoRtER

Rendez-vouS de SeptembReSeptembeR 12-15 2010monte CaRlo, monaCo

Sunday September 12 2010 1

Reactions Rendez-Vous Reporterwww.reactionsnet.com

LEAD SPONSORS:

SPONSORS:

INSIDE thIS ISSuE…

taking no chances ...........3

Sullivan resurfaces at Willis’ new unit .5Reinsurers’ funds up 12% in first half .......7NZ quake loss insured $2bn-$4.5bn .............9Gen Re will walk the walk, says CEO ........11Reactions Global Awards 2010 nominees .......12

Debating the future for broking ..........15IAIS calls for macro-surveillance ...19Share buybacks up sharply in first half .........20RiskBitz .........21Insurers demand action ............23

INDuStRY OutLOOK

Raters downbeat on reinsurersSoft pricing, overcapacity, slack demand and low investment yields will combine to challenge reinsurers in the coming year, rating agency analysts agree. Moody’s credit outlook on the reinsurance industry remains negative. It believes that fundamentals for the industry are more likely to weaken further than improve in the next 12 to 18 months. In 2009 reinsurers’ book value increased as a result of the recovery in the capital markets and low catastrophe losses, and balance sheets have remained strong despite much higher losses this year related to events such as the Chilean earthquake and the Deepwater Horizon disaster, Moody’s says in its global reinsurance outlook report.During 2009 the aggregate book value of the top 40 global reinsurers grew by 28% over year end 2008 levels, to around $365bn at the end of 2009. In addition, equity positions for these firms have continued to increase, ending the second quarter of 2010 at around $385bn. At the same time, the demand side remains weak, reflecting slow global growth rates. US non-life insurance premiums fell during 2009 for a second straight year, down 3% year over year and about 5% since the peak in 2007.

Of the non-life insurers Moody’s surveyed, most do not plan to increase their reinsurance budgets during 2011. “With premium volumes drifting lower and equity positions holding steady, we believe the industry has too much capacity, which is likely to manifest in increased

price competition,” said James Eck, senior credit officer at Moody’s.At the end of the second quarter of 2010, shareholders’ funds at the top 40 reinsurers were 6% higher than levels at the end of 2009, and were up 36% since the end of 2008. Only the return of capital to shareholders through share buybacks and dividends in recent months has slowed the upward progression of capacity.Moody’s believes that conditions are favourable for additional mergers and acquisition activity. “While share buybacks have helped keep the level of overcapacity in check, solving the overcapacity issue in this environment may require capital to leave the sector through consolidation,” Eck said.Analysts at Fitch retained a stable outlook on the reinsurance market on the basis that “the challenges facing reinsurers are unlikely to impede the stability of earnings and strong levels of capitalisation for the majority of reinsurers

over the next 12 to 24 months”. But Fitch also warns that the intensification of competitive conditions mean that the prospects for continued strong earnings have diminished for many global reinsurers. Like Moody’s, it points to mounting pressures from the softening premium rate environment, reduced demand for reinsurance capacity among cedants, and continuing challenges in generating sustainable levels of investment income in the low interest-rate environment.Fitch says reinsurers are also contending with a variety of complex regulatory issues – including the introduction of Solvency II – which require adaptation to a changed competitive landscape.The ability of reinsurers to successfully execute on cycle management strategies will vary, and Fitch believes that the next 12 to 24 months will prove to be a crucial period of differentiation between reinsurance companies.

Sunny monte Carlo – but clouds form on reinsurers’ horizon

1Rendezvous ReporterSunday 4-9-94

As we yet again have theopportunity to meet ourfriends and business con-tacts in the insurance andreinsurance industry inthese pleasant surround-ings, we will be discussingmany familiar themes.

The security of the rein-surer will be the topic ofthis year’s panel discus-sion, and I have no doubtthat this issue is high up oneverybody’s agenda. I hope to seemany of you in the auditorium onTuesday morning to listen to ourthought provoking presentations andto share in the ensuing discussion.

To demonstrate that the battle toachieve an equitable and profitableflow of business between insurersand reinsurers is never finally won,topics from last year’s debates will

not have lost their rele-vance for this year. Moretechnical pricing, properreturn to shareholders, therole of intermediaries,trends in natural catastro-phes, continuous expansionof the concept of insuredliability: all these issuesremain highly topical. The organising committeehopes that all of you attend-ing this year’s Rendez-vous

will have fruitful discussions, sharingviews on the state of the market andidentifying new opportunities forprofitable business while also enjoy-ing the clement weather andrenowned hospitality of Monte Carlo.

Antoine Jeancourt-Galignani, Assur-ance Generales de France and presi-dent of the organising committee of theRendez-vous de Septembre.

Welcome to the 38th Rendez-vous de Septembre in Monte Carlo!

AGENDAMonday

18:00 Welcome cocktail on theCasino terrace open toregistered delegates

Tuesday

09:30 Panel discussion “How toevaluate the security ofreinsurers” chaired by KajAhlmann, Employers Re.Speakers include Robert JMebus of Standard &Poors, Pierre Florin of AxaAssurances, and JohnLombardo of MunichAmerican Re, The MonteCarlo Convention Centreauditorium

Wednesday

09:30 Paper by Pierre Florin,president of the AssembléePléniere des Sociétéd’Assurances DommagesThe Monte Carlo ConventionCentre auditorium

21:00 Dinner & Entertainment at theSalle des Etoiles, MonteCarlo Sporting Club. Black tie

INSIDEMarie-Louise Rossi, chiefexecutive of LIRMA talks to theReporter about her hopes andfears for the future .......................2

Why everyone is talking aboutPine Top and Pan Atlantic ...........2

Reuter Insurance Briefing:Keep on top of market news as itsurfaces .......................................3

This year’s Rendez-vous is thebiggest in five years. A mighty 2200delegates from 80 countries haveregistered – which surely reflects anupturn in the industry’s fortunes.The event is important to MonteCarlo, which plays host to 217 con-ferences each year. The Rendez-vous de Septembre is the biggest,closely followed by the Lycra Ren-dez-vous in January, a meeting ofanyone who’s anyone in lycra (youknow, swimwear, cycling shorts,that sort of thing). Imagina, the TVfest, attracts a large number ofsquare eyes in February.

The principality has four millionvisitors each year:

Record breaker

Rendezvous ReporterMONTE CARLO RENDEZ-VOUS 1994 DAY ONE Sunday 4th September 1994

Come and see us at the SalonNaïade “A” in Hôtel Loews

FOR UP-TO-DATE NEWS SOURCED FROM REUTER INSURANCE BRIEFING SEE PAGE 3

A twelve year old El Nino, theoceanographic phenomenon where-by a rise in sea/surface temperaturescauses storms on either side of thePacific, could be with us into thenext millennium, according to newresearch. Dr Greg Jacobs of the NavalResearch Lab in Mississippi, claimsthat the original change in water tem-perature that happened in 1982 is thecause of the flooding which hit theDeep South last year. Moreover, hiscomputer modelling indicates thatthe 1982 weather system will con-tinue to affect the North Pacific foranother ten years to come.

The 1982 El Nino was thestrongest in 100 years.

El Nino upon us

Antoine Jeancourt-Galignani

http://www.reactionsnet.com/digital





Focus.At Markel, strategy and execution are equally important. We are mindful of the big picture, and we are relentless when it comes to process improvement, technology deployment, and strengthening relationships.

Paying attention to details . . . that’s the Markel Style.

markelcorp.com

SUNDAY


Hartigan: Loss creep a systemic issue

Reinsurance market rating conditions are usually the No. 1 topic at Monte Carlo, and this year

is no exception. Patrick Hartigan, head of reinsurance at Beazley, believes that there’s upward pressure on property cat rates for two main reasons: changing loss experience among carriers and a reduced appetite among ILS investors.

Hartigan says there is renewed emphasis among primary and reinsurance underwriters on achieving rates commensurate with the exposure. “The risk has taken a slightly different form over the last couple of years, with secondary perils from tornado, hail, flood and notably wildfire coming to the fore,” he says. “It’s almost a misnomer calling them ‘secondary perils’ in view of the loss activity we’re seeing from 2017 and 2018.”

Linked to growing losses from secondary perils is the loss creep factor. The initial underestimation of natural catastrophe losses has revealed serious inadequacies in the models used by many carriers, Hartigan believes.

“Hurricane Irma had a significant deterioration of losses, and it wasn’t a one-off,” he says. “The loss creep associated with both Typhoon Jebi and Hurricane Michael suggests a systemic issue with loss estimation. The industry needs to get a handle on it.

“The models being used don’t seem

to represent what has changed over recent years, since 2004-05 or 2010-11, for example. In some cases, like Jebi, companies were using their average loss for typhoon from as far back as 1991,” Hartigan continues. “It was partly because economic factors like inflation hadn’t changed, but the models didn’t include risk factors that have changed, like business interruption or loss adjustment expenses, as well as higher wind speeds.”

More “ground-up” information needs to be included in models to make them more credible, Hartigan adds.

Unexpected loss severity from nat-cat events has weighed on ILS investor sentiment, and Hartigan believes that a re-evaluation of the asset class by some will have an effect on rates across the board.

“The capital outflow from ILS will see those remaining [investors] looking for a better risk/reward ratio,” he reckons. “In the same way as growing ILS capital put downward pressure on rates after the 2017 losses, investors’ reticence to deploy more capital should also help push rates up.”

While pension funds still see reinsurance as a long-term investment, adds Hartigan, other investors might see better returns in other asset classes or consider it to be too risky an asset class in light of climate change.

Talk often turns to M&A in Monte Carlo, and Hartigan thinks that 2019 will be no different as brokers and carriers either weigh their options or continue to integrate recently consummated deals. “It will be interesting to see if the synergies stated as the reason for doing deals do actually materialise,” he says.

“When a company has a strong portfolio of business it is often more efficient to bring on board the business or the team than [acquire] the whole entity, and I think we will see more of that,” adds Hartigan. “The potential for cultural differences to derail M&A deals is frequently underestimated. It is much easier to integrate a team within a group, and at Beazley we have done that very successfully.” l

Patrick Hartigan


TWO EQUALLY WEIGHTED TARGETS

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tock

SCOR has now successfully concluded its “Vision in Action” plan, confirming its position as an independent global Tier 1 reinsurer with a “AA-“ rating. SCOR has once again demonstrated its ability to combine growth, profitability and solvency in a period of low interest rates, marked by a series of natural catastrophes.

Things are speeding up. The environment is becoming increasingly uncertain and complex, in scientific and technological as well as economic, financial, geopolitical, societal and regulatory terms. In an expanding and changing risk universe, SCOR firmly believes that reinsurance has strong growth potential.

With its proximity to clients, its recognized expertise and its mastery of Life and P&C reinsurance, SCOR has all the vital qualities necessary to meet a growing demand for protection.

In a changing risk coverage market, Quantum Leap will ideally position SCOR to create even greater value for all its stakeholders.

SCOR has set itself ambitious profitability and solvency targets in the current financial context. Under the Quantum Leap plan, the Group will pursue its growth while staying true to the fundamental principles that have shaped its success – a controlled risk appetite, a robust capital shield policy, high diversification and a strong franchise - transforming profoundly to create the reinsurance company of the future. SCOR is using new technologies – such as artificial intelligence, robots, blockchain, big data, satellite imagery and multi-cloud… – to innovate, expand its offering and increase its efficiency for the benefit of its clients throughout the world. All of the company’s activities are involved, from underwriting to asset management and from risk analysis to claims settlement. All SCOR employees are totally committed to implementing this ambitious plan, which will enable SCOR to fully adapt to the world of tomorrow.

http://www.scor.com


SUNDAY

Convex keeps Lloyd’s guessing Convex co-founders Stephen Catlin and Paul Brand have yet to decide whether their newly formed specialty insurer will open in Lloyd’s.

Convex, which is still in the process of staffing up, is authorised in the UK and also has an approved

Bermuda operation. Speaking to Reactions in the run-up to

the Rendez-Vous, Catlin acknowledged that forming a Lloyd’s platform would be seen as a seal of approval for the market and that his decision was eagerly awaited.

“I’m aware that we are being watched by a lot of people, not only Lloyd’s underwriters. It’s brokers, clients, regulators, rating agencies and even Government,” he said. “It is a complex question, and we have got to work through some priorities.”

The Convex business model relies heavily on outsourcing sources to keep its operating costs to a minimum.

“Our first priority is to our shareholders. Having put an emphasis on outsourcing to save costs, to then jump into Lloyd’s and put those costs onto the books is quite difficult to justify to shareholders,” Catlin explained.

Catlin applauded the reforming agenda being pursued by Lloyd’s, however.

“CEO John Neal has his work cut out, but I believe he has as good a chance as anyone to succeed,” said Catlin. “He is a seasoned practitioner, who knows what ‘bad’ looks like, he understands distribution. He is the most qualified CEO Lloyd’s has ever had. We are very supportive of what he is trying to achieve.

“Lloyd’s is long overdue for change, and this regime is so much better than the last. But [the new executive management] inherited a poisoned chalice,” he added.

Convex co-founder Paul Brand affirmed that starting a platform in Lloyd’s is as yet an open decision. “Lloyd’s has identified a number of issues and they are trying to resolve them. We are going to defer our decision because we don’t yet have the facts and figures we need to decide,” he said. “We like what we are seeing and we are trying to be as supportive as we can be. But there is a timing issue in relation to where Lloyd’s is and where we are.”

Launching an operation in Bermuda,

as well as the UK, was a less complicated choice and is seen as a fillip for the offshore domicile.

“I spoke to the UK regulators, including Bank of England governor Mark Carney, and the Treasury about our plans before any firm decisions were made about Convex. The shared reaction was, ‘Great – UK plc is in need of good news.’ The response from Bermuda was not dissimilar,” Catlin said.

“After losing a number of holding companies in the recent past due to consolidation, it is a positive political statement for Bermuda to say they now have an extra $2bn of new capital. So Convex is music to their ears, in that sense.

“The island’s regulators asked us some tough questions nonetheless, but we were prepared and could answer them on the spot every time. There were no shortcuts.” lSee Reactions’ September issue for the full interview with Stephen Catlin and Paul Brand.

Stephen Catlin and Paul Brand speaking with Reactions



SUNDAY

Socially conscious investing: taking values into account AXA Investment Managers Head of Impact Investing Jonathan Dean talks to the Rendez-Vous Reporter about the value of mindful investing for re/insurers.

Why is now the “right” time for reinsurers to participate more in impact investing? What factors contribute to making this a solid proposition? In wider society we are seeing an increased focus on the issues tackled by impact investing across all business lines, consumers, the asset management world as well as in insurance and reinsurance. Companies are faced with customers and stakeholders demanding more from them. Now more than ever, customers care about the activities of companies they interact with and stakeholders are asking more of their investments, beyond just the financial return. This market dynamic has laid the foundations for the impact investing industry to establish itself and grow. Since 2012, when AXA Investment Managers entered the impact investing market, the industry has grown tenfold from $50 billion to over $500 billion*.

Impact investing intended to address climate change would seem to be in the best interest of re/insurers. Is that actually the case? And how might they benefit from such investments, especially in the long term? Addressing extreme weather events caused by climate change is an obvious place to start for insurers and reinsurers as it can directly affect their businesses. Impact investing can in fact facilitate an alignment with a company’s activity. By actively investing to address climate change, insurers and reinsurers can also align their investment portfolio with their core business activity. Furthermore, from a reputational perspective insurance and reinsurance companies who participate in impact investing will be more desirable to customers, potential new employees and stakeholders.

However, it is important to note that climate change is an overarching theme and under it sits a variety of other forms

of environmental investments, such as the protection of natural capital or avoiding the loss of biodiversity. This includes looking at how we can invest to prevent deforestation and how we can build a relationship between conservation and agricultural practices within these regions to make them more sustainable.

Finally, insurers and reinsurers can invest in making the communities affected by climate change more resilient. There are a variety of methods in which companies can have an impact on people’s resilience. For example, investment can be made into creating and distributing microinsurance products to ensure the livelihoods of communities are protected. There are also opportunities to invest in data and analytics to assess how communities are being affected by climate change and what needs to be put in place to mitigate these issues.

If the insurance industry were to develop an increased focus on impact investing with regard to mitigating climate change, what types of initiatives would they invest in? An important initiative to invest in would be energy transition, while bringing in a social aspect to look at access to clean forms of energy, particularly in micro and off-grid communities. This could involve replacing the traditional forms of energy for these communities, such as kerosene and charcoal, and making clean energy sources such as solar more accessible. With the disruption from new technologies, clean energy such as solar has become more affordable and methods of distribution have been made more efficient.

What is important to remember with regard to impact investing is that no investment should be made in isolation. There is a close relationship between

environmental and social initiatives, and the two should not be forced into separate silos. A balanced relationship and ecosystem between environment and society ensures that sustainable development is possible.

What would you say to sceptics who would suggest that social responsibility and making returns on one’s investment have to be mutually exclusive? It is entirely possible to achieve both a market rate financial return as well as a positive social outcome on an investment. There does not need to be a trade-off between the two, and it should not be seen as a negative to strive to achieve both. If we want to make real change then we must ensure that our positive actions can pay for themselves and are indeed sustainable, financially and socially, if they are to be continued.

What is important to remember is that both consumers and stakeholders are demanding more from companies. They are becoming increasingly sensitive to the activities of companies, their purpose, their social and environmental footprint. The companies who are the most successful are the ones who have adapted, or who are adapting, to this rapidly changing market they are operating in. l* Source: As at end 2018. The GIIN Annual Investor Surveys (note respondent assets only).


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SUNDAY

Monte memoriesWe asked: “What are some of your most memorable moments of attending the Monte-Carlo Rendez-Vous, and how has the event helped inform your perspective on the market?”

Julian Tighe, CEO, Asta It’s easy to lose sight of the

importance of the Rendez-Vous amongst the glitz, glamour and the Cote d’Azur sunshine, but the

Rendez-Vous is a constant reminder to me of what a

fantastic market we all work in and how lucky we are to gather

with friends and colleagues from around the world to discuss the issues and help shape our market for the future. And whilst the Rendez-Vous reflects the abiding spirit of fellowship and community which I think is unique to the insurance industry, it’s also a place which provides insurance professionals the forum to conduct important business.

One stand-out memory for me was being invited to the legendary SCOR lounge one afternoon, where I

was introduced to someone who became both a long-standing client and a friend in the market – something I believe would not otherwise have happened – and proof, I think, that the Rendez-Vous is a special place where the market will continue to do business and make memories for years to come.

The 2019 Rendez-Vous we hope will be remembered as the time when the Lloyd’s market looks forward to a bright future as it progresses its plans for transformative change. For Asta, this means carrying on the work of the last two decades throughout which we have demonstrated our ability to respond, adapt and remain a committed, proactive partner to the market. The Future at Lloyd’s initiatives such as Syndicate in a Box and attracting new capital are golden opportunities for us to create a lean, modern and diverse market fit for the next generation. We stand ready to play our part, and look forward to reflecting on our collective progress when we all meet again in 2020.

Greg Hendrick, CEO, AXA XL

For many of us, the Monte Carlo Rendez-Vous has become the rough equivalent of

back-to-school week. There is a great deal that

is familiar about the event, the same hotels, the same friends

and colleagues from across the market and often conversations following a common narrative.

However, in 2016 I found myself on unknown terrain. The building works taking place for the massive refurbishment of the Hotel de Paris meant the well-trodden shortcut from the Hermitage to the Fairmont was blocked by skips and scaffolding, and what was a 10-minute brisk walk became a 20-minute hike. I am sure Dr. Spencer Johnson, the author of “Who Moved My Cheese” – the book demonstrating the importance of adaptability in life – would have something to say about the alternative paths we each found.

On a serious note, I do believe our industry has been

– and continues to be – highly adaptable. Just consider, for example, how traditional reinsurance has partnered with alternative capital over the years and how today many of us in the industry invest in or work with the disruptors of the InsurTech industry.

My most memorable Rendez-Vous was in 2017, when in the wake of Harvey we watched Irma first threaten Miami and ultimately run a path over the Keys and up the west coast of Florida. My iPad was never out of reach as we monitored the hurricane, focusing on our clients, assessing our aggregate, and loss adjusting in real time – and for some of us, we checked to see how friends and property in Florida were making out through the storm. That year, more than any other, the conversations I had centered on the fundamental purpose of reinsurance and this only added to the enterprise and endeavour with which we approached our meetings.

As we approach this year’s Rendez-Vous, I am reminded of the essential role reinsurance plays in helping society to mitigate and respond to the many natural, economic and environmental threats it faces, in a way that not only safeguards but enhances global growth and prosperity today and in the future.


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SUNDAY

‘Fairly benign’ renewal season ahead Steve Hearn, CEO of BGC Insurance Group, chats about his predictions for 1 January renewals, the impact of InsurTech, and the fallout of the Lloyd’s performance review.

Looking ahead to 1/1, what are your predictions for pricing given the trends we’ve seen so far in 2019?There are many months ahead and still the U.S. wind season to play out, and we’ve seen time and time again that things can come along and totally change our view. In fact, as we all know, we’ve seen things change significantly, even as we walk into Monte Carlo. But all other things being equal we don’t see anything significant happening between now and the close of the year. I think we’re in for a fairly benign renewal season.

In Monte Carlo no doubt you’ll see brokers talking prices down and reinsurers talking prices up without a lot of justification. There are obvious exceptions that are client-specific as well as geographic or even product class, but broadly we’re on for a flat renewal at 1/1, save for anything happening between now and then.

Is there a sense that a more “rational” market is emerging in the wake of the Lloyd’s performance review?A couple of years ago, Lloyd’s had £2 billion of pre-tax losses and a year later £1 billion of pre-tax losses. But under John Hancock’s auspices the pendulum swung hard in the other direction. John brought in what some would say was a brutal process around business planning – I would say exacting and demanding.

The fallout has been significant. A lot of underwriters have lost their jobs as product classes within the bottom decile have been exited. Pricing has corrected in other areas and yes, we’re still living with the consequences of that. But significantly (and unusually), the rest of the world hasn’t gone through the same correction. And the truth is, you have seen business shipped out of London into some of the other regions of the world.

So we’ve had this perfect storm of a necessary and exacting performance review, borne out of some horrific

loss periods. And at the same time the rest of the world is becoming more sophisticated – by which I mean Singapore, Bermuda, Hong Kong, Dubai, even Miami. The U.S. domestic market is more than capable of writing specialty risk.

Then if you add to that other headwinds, like Brexit uncertainty, it is

clear there are some major ramifications for Lloyd’s. We’ll see what happens in the new year. I’m not hearing much about insurers starting to diversify again, and some of the biggest MGAs have really struggled to secure capacity.

Have carriers done enough in the challenging operating environment to improve efficiency and embrace technology?It’s very company-specific. There are some carriers who have done some great work ... some of the bastions of the London Insurance Market. That’s partly because they’ve embraced the opportunity that comes out of some of the challenges that the market has gone through. And then there’s the other end of the bell curve, where there is the perpetuation of a very dated business model.

Moving on to InsurTech, a few years ago the talk was all about disruption. Has that conversation now moved on?There’s some exciting stuff going on with the tech start-ups, but it’s tiny. The biggest brokers in the world all have teams looking at disruption and how they can be

significant, and in my opinion they have the challenge of the supertanker model.

What has happened, as we’ve continued to talk about whether Google and Amazon are going to turn up, is that someone on the other side of the financial services fence has looked across and said, “42% on average of every customer’s dollar when you walk into the

Lloyd’s building goes in costs ... what a tremendous opportunity.”

So there’s a different capital base and different thinking that perhaps now starts to properly get some traction around change. And for John Neal and his senior team, engaged as they are and particularly if they get some political and regulatory support, one of the opportunities is for London to become the electronic

exchange for specialty insurance and reinsurance.

What do you expect some of the big talking points to be at this year’s Rendez-Vous?Consolidation is definitely going to be a theme and inevitably there will be some discussion over how the JLT Re and Guy Carpenter integration is going and about Stephen Catlin’s startup. And I wouldn’t be surprised if there is another acquisition on the cards that will be announced by the time we get to the Monte Carlo Rendez-Vous. l

“There’s some exciting stuff going on with the tech start-ups, but it’s tiny. The biggest brokers in the world all have teams looking at disruption, and in my opinion they have the challenge of the supertanker model.” Steve Hearn, CEO, BGC Insurance Group



AON

First quarter 2019 non-life ILS issuance was just over $1bn – the lowest first quarter for total issuance in the past five years. Why did the market stall and what’s the outlook for the future?Our outlook is actually bullish. It has been a challenging six months, but we are expecting elevated levels of activity in the fourth quarter and higher issuance in 2020. In other words, we think there will be a strong resumption in issuance over the next 18 months compared to last year.

What caused the temporary loss of momentum?Catastrophe events in 2017 led to a reloading, and introduced fresh capital in time for the January 1 2018 renewals. It was a significant amount of new capital that not only replaced the lost and trapped capital but assets grew to write more business. It had a significant effect on the overall property cat marketplace and contributed strongly to a stable renewal at the start of 2018.

Then there were more events in 2018 and some further loss development from 2017 and that produced a more muted response from the capital markets with less new capital being made available. The impact of lost or impaired capital was much more pronounced during that period. So ILS managers were a little stretched in terms of where they could deploy capital.

What did participants take away from that experience?What’s happened is there has been a tremendous amount of constructive dialogue and education between ILS managers and their investors about their expectations. Now we’re in a market where, if there is a light loss year, the retained earnings on the existing $93bn outstanding of ILS in the market will provide growth. Also fresh capital in the fourth quarter and what’s in the pipeline for 2020 will add to the building momentum.

What sort of questions have end investors been asking?The number one topic for investors is the impact of climate change. Investors want to know how much climate change contributes to the recently observed nat cat activity and what future climate trends look like.

Also, there’s more granular discussion about what types of cover are being offered and the pricing adequacy for those risks. Investors want to know how external models can be used to guide them on getting adequate returns from the risks they’re exposed to.

It’s been a refreshing period where everyone has taken time to reassess how to frame the future of ILS and make the asset class more reliable and more durable over time.

Transparency is important in the context of loss development and everyone is searching for a way of bringing more transparency and accountability to the [securitisation] process to limit the surprise element.

What areas of growth do you see for the ILS market?We expect to see growing demand from two principal sources. First, reinsurers hedging their portfolios. Typically, that will be multi-peril type coverage with the US as an integral, and not exclusive, part of the coverage. Then there’s going to be more demand

from governments ramping up their de-risking efforts. That will be global and not just the US. It will accelerate in the near and longer term.

In the US, opportunities will come from parts of the market that have had loss activity leading to distress. But there is also more interest from government to tap third party capital through the FEMA/NFIP flood programme.

The US government is starting to see that the private market can provide capacity that’s fairly priced to help it de-risk its own balance sheet. The government-sponsored agencies Fannie Mae and Freddie Mac have already successfully de-risked by buying mortgage re/insurance, and it represents a possibility for ILS activity in the future.

Globally, government and quasi-government agencies looking to create greater resilience for society will bring more ILS risk transfer capacity to certain markets.

Will there be a role for ILS in corporate risk transfer?We do see some interest coming from corporate clients who want to hedge their risks into the capital markets. In the near term, there will be innovation around products relating to cyber risk coming to market.

But while cyber is the headline risk, there will be other non-cat related product innovation.

Corporate solutions based on cat type events, whether it is property or BI from property losses, have a lot of potential too. Non-damage business interruption, where the physical event has created another impact, other than physical damage, is an interesting area. For example, providing protection where a terrorism or cyber event has a dislocating effect on revenue sources. Solutions that can protect against a loss of revenue or income are appealing to corporate clients. l

The ILS market takes stockThe ILS market will regain its momentum this year after issuers, managers and investors re-calibrate and review risk, according to Paul Schultz, Chief Executive of Aon Securities.



SUNDAY

KBRA: The challenger cometh

Kroll Bond Rating Agency (KBRA) may be a relatively new player when it comes to the world of

insurance credit ratings, but being a recent entrant to the space has allowed it achieve a nimbleness that is competitors may find difficult to match.

Having administered its first insurance rating in 2016, KBRA is now setting its sights on different aspects of the re/insurance marketplace.

Rating agencies have been in no rush to jump into the world of alternative capital in insurance, but that is where KBRA President and CEO Jim Nadler sees an ideal opportunity.

“We have seen company after company come to us just exasperated by having to do backflips to fit into these capital models that stick around for years, and we think these rating agencies have done a disservice to the market,” he says. “When you put a capital model together you expect it to last 10 years, and it doesn’t even last two because these are living, breathing markets.”

This outlook fits KRBA’s previously stated philosophy of looking at each rated entity on an individual basis rather than through a prescriptive, purely capital-based lens.

“We look at your capital model, and we make sure that it is appropriate at the time for your risks and assets and we determine your rating based on

that,” Nadler explains. “This makes it so that two years later when your capital model changes because the market has changed, you’re not tearing your hair out trying to figure out how to make your business look like it fits into a static rating structure.

“I think that it is a positive for the issuers because it allows them to focus on their business and not making it fit into a rating requirement, and it is a positive for the investors and policyholders because it more accurately reflects the company’s business at the time,” he adds.

Another factor that will likely have a large impact on the insurance-financial-strength rating space is the threat posed by cyber risks.

According to Nadler, cyber threats

have only grown over the past few years, but insurers are finally starting to get a better handle on the peril.

“Cyber is becoming an even bigger issue than we would have predicted. Across the board, it affects our ratings in insurance, financial institutions, corporates, etc. We’re finding that it’s becoming a bigger issue,” he says.

Indeed, cyber “has the potential to be the next cat risk for insurers,” adds Nadler. “At the same time, the information and the data [around cyber exposures] are really inconsistent, and I think that nobody has a real clear sense of what the full scope of this potential risk is.”

Despite a continued lack of insight into the cyber insurance market, oversight in the space is improving, he says: “We’re just now beginning to see the early signs of really clear and good corporate governance across the universe of banks and other financial institutions.”

Some of that push is regulatory, he says: “Companies are scared, worried that if they don’t set up a protocol that follows best practices that they will be held liable for anything that goes wrong. The other half is reputation risk. Breach disclosures getting shorter due to this, as companies realise getting on top of things is important. This is helping insurers get their arms around the insurance side of the cyber market.” l

Swiss Re has regained the top slot in A.M. Best’s annual ranking of the Top 50 Global Reinsurance groups,

squeezing out its competitor Munich Re. The first five positions were reshuffled

in 2018, with Munich Re dropping down to second, the position it last held in 2016. Munich Re has held the top slot every other year since 2010.

After moving up in last year’s ranking, bolstered by a reinsurance agreement of almost $10bn between National Indemnity Company and AIG, Berkshire Hathaway fell back two places to fifth given the one-off nature of the deal.

Hannover Re and SCOR took the No. 3 and No. 4 spots, respectively. Both reported modest growth in 2018, but SCOR experienced a mild top-line decline driven by the weakening of the euro against the U.S. dollar.

Overall, the Top 10 reinsurance groups make up 68% of the total gross premium written in the Top 50 ranking. A.M. Best believes that the industry’s largest reinsurers continue to house disproportionately sizeable amounts of risk, despite cedants’ efforts to diversify their reinsurance panels and spread their counterparty exposure. l

Swiss Re takes pole position in rankings

Jim Nadler

Top 10 global reinsurersCompany name GWP $bn

Swiss Re 36.40

Munich Re 35.81

Hannover Re 21.95

SCOR 17.47

Berkshire Hathaway 15.38

Lloyd’s 14.06

China Re 11.56

RGA 11.34

Great West Lifeco 7.74

Korean Re 6.80

Source: Top 50 Global Reinsurers, Best’s Market Segment Report: “Global Reinsurance: Fighting the Last War”


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SUNDAY

The UK’s Ministry of Justice’s decision to change the discount rate applied to personal injury

lump-sum compensation payments to minus 0.25%, from minus 0.75% is sure to be a big talking point at the Rendez-Vous this year.

The decision to keep the so-called Ogden rate negative was a big disappointment to insurers and reinsurers who had hoped for a positive percentage rate: a lower rate requires insurers to make larger lump-sum payments on personal injury claims, as it assumes lower annual investment returns for that amount.

“This is a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money,” Huw Evans, Director General of the Association of British Insurers, said in an early statement reacting to the news. “A negative rate maintains the fiction that a claimant and their representatives will knowingly choose to invest their damages in a way that would guarantee losing them money. This will remain the lowest Discount Rate in the Western world, leaving England and Wales an international outlier at a time when we need to boost our attraction to international capital.”

The rate was reduced sharply by the Government from 2.5% to -0.75% in March 2017, causing motor insurers especially to hike their rates and provoked consternation among reinsurers who anticipated higher claims.

Under new legislation passed at the end of last year (after consultation), the Lord Chancellor will set the discount rate at least every five years with independent advice, with the intention

of reducing “the burden of over-compensation on defendants.”

Commenting on the revised discount rate, David Powell, head of non-marine underwriting, Lloyd’s Market Association, said: “The Lloyd’s market is very disappointed with the result of the first review of the Personal Injury Discount Rate under the new statutory process set out in the Civil Liability Act 2018, which has marginally adjusted the rate from minus 0.75% to minus 0.25%. Whilst the change is positive for compensators, such a small movement that retains a negative rate is a severe disappointment and well below the level underwriters were expecting.

“The new rate will sustain the vast majority of reserving costs that were imposed on the insurance industry when the rate was previously changed from +2.5% to minus 0.75% in 2017,” he added. “The highly competitive nature of our industry means that reductions in costs will quickly influence premiums. However, this positive but small change is unlikely to lead to substantial price reductions for policyholders.

“We await further information from the Lord Chancellor so that we can understand the reasoning in more detail and the statutory Impact Assessment should make interesting reading,” said Powell. “We are surmising that the Government Actuary has given a very negative view on the wider economic factors that are assessed as part of the new rate-setting mechanism.”

Dave Matcham joined the chorus of disappointment, stating: “We have always supported a rate which fairly reflects the ‘100%

compensation principle,’ ensuring claimants are put in neither a lesser or more advantageous position than any ordinarily prudent investor favouring a low-risk investment approach. The Government’s statement, however, indicates that a rate of minus 0.25% leaves a claimant twice as likely to be over-compensated than under-compensated.

“The likely effect will be to drive up the cost of insurance for policyholders across the market,” Matcham warned.

“This news has wiped the smile off the face of the many insurance actuaries still celebrating England’s cricket win yesterday,” Kate Duffy, partner with global law firm Clyde & Co, said in a statement. “-0.25% is a poor result. Yes, it’s better than the proposed -0.75%, but it remains woefully inadequate. From the industry’s perspective, it tips the odds too much in favour of claimants at the expense of insurance-buying motorists and businesses, who will inevitably have to dig deeper for insurance costs.”

But while much of the industry have expressed their frustration at the small rate change, it is not expected to be a market-turning event, according to AM Best, which issued a note on the implications for UK insurers.

“Overall, insurers will be disappointed that the change did not meet industry expectations and policyholders are

unlikely to see meaningful motor or liability premium reductions in the near future,” the

agency said. “The alteration is likely

to have a minor one-off earnings impact on some

companies through strengthening

or release of reserves. However, AM

Best does not expect it to have a

material impact on the capitalisation or

credit ratings of UK insurers,” the note added. l

Ogden rate to drive up prices



SUNDAY

What are your thoughts on how natural catastrophes have been impacting the industry of late? Do you see such losses as cyclical, or will the impact of climate change alter the way reinsurers’ risk portfolios will be viewed/assessed going forward?Reinsurers particularly have been at the forefront of climate change research for decades. The science is complex, and it is difficult, so far, to draw any but very broad conclusions. For example, we have seen a clear trend toward increased rainfall accompanying U.S. landfalling hurricanes. However, the jury is out on the permanence of this change – climate change could indeed play a role. In contrast, the number of landfalling hurricanes appears to be up, but only in the short term.

Other periods have also seen clear peaks in frequency, so it would be wrong to immediately conclude that hurricane frequency has risen, let alone to attribute the recent experience to climate change. But it is possible!

One thing we can be sure of is that model assumptions are updated constantly based on recent experiences and the input and analysis of leading climatologists. Model outputs are an important component of the factors which reinsurers consider when assessing and pricing natural catastrophe risk, but they also build in a great deal of uncertainty. So to answer your question directly, portfolios will be viewed and assessed in the same ways, but the assumptions behind those assessments will continue to change constantly.

Globally speaking, which regions do you regard as having the greatest growth potential? We see opportunities all over the world. In developed markets like the U.S., the “protection gap” is large in some surprising areas. Very few residential properties in California have earthquake insurance, for example. Product design, pricing, and delivery will all be key

to addressing that particular gap. A number of reinsurers are actively supporting ways to increase demand through partnerships with governments, NGOs, Development Banks and other para-statal organisations.

We are seeing a rise in opportunities for reinsurers to participate in pooled Caribbean catastrophe risks, for example, through mechanisms like CCRIF. Similarly, U.S. flood insurance is opening up, directly and through the reinsurance of the NFIP.

Huge opportunities exist in China but practice is different there, risks are challenging, and insurers need to take those factors into account. Latin America offers real potential for insurers and their reinsurance backers. Finally, through innovative approaches like microinsurance, many opportunities are emerging in markets including some African countries and in India. Reinsurers have actively supported new distribution techniques to help reach out to previously uninsured individuals and organisations.

Once again, it is a matter of getting the product design, price, and delivery

right for the individuals who may buy insurance.

I’d like your thoughts on the trend toward M&A and further consolidation, particularly on the reinsurance side. Do you think we’ll continue to see more? It seems likely that more M&A will happen. The age of the niche reinsurer is not over, but carriers need to achieve a critical mass to optimise their cost of capital through diversification by product and region. We have seen several large deals where a big player buys up or down the risk transfer chain to protect their position and gain more of the premium pie; and recent deals are unlikely to be the last. I expect also that we will see more deals in Lloyd’s, although valuations are likely to ease further with

the pace of deal flow, after the recent frenzy of acquisitions in the Lloyd’s market.

All of this is good for the industry, since larger players with lower capital costs and more extensive reach are more stable and financially more robust. However, it is important that larger entities

– whether carriers or brokers – don’t lose sight of the need for innovation, creativity, and client service.

How do you see the P&C industry’s distribution channels evolving over the next five to seven years?What’s already happening will continue to evolve. Large players will continue to move vertically up and down the chain through acquisitions and amalgamations. Technology will deliver insurance to customers more directly, whether it’s insurers offering products directly to retail brokers, circumventing the wholesale or MGA players, or the further development of platforms like the comparison websites that now dominate UK retail insurance, but are delivered through system-interface tools that allow retail brokers to garner multiple quotations after entering risk data only once, into their own systems. l

New links in the risk chainQ&A with Willis Re International Chairman James Vickers

“Through innovative approaches like microinsurance, many opportunities are emerging in markets including

some African countries and in India.”James Vickers


Renewal season is here–talk to an award-winning team.At Wilmington Trust, we pride ourselves on being a leading

provider of corporate trust services. Our dedicated team of

professionals understands the intricacies not only of reinsurance

trusts, but of captives and the numerous associated transactions.

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of management.

For more insight on our insurance collateral

services, contact one of our experienced

professionals or visit wilmingtontrust.com/

insurancecollateralsolutions.

Services provided by Wilmington Trust, N.A. Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. Wilmington Trust Company, operating in Delaware only, Wilmington Trust, N.A., M&T Bank, and certain other a� liates provide various fi duciary and non-fi duciary services, including trustee, custodial, agency, investment management, and other services. International corporate and institutional services are o� ered through Wilmington Trust Corporation’s international a� liates. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are o� ered by M&T Bank, member FDIC.

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31027C GCM19 Monte Carlo Rendez Day 1 190828 VF.indd 1 8/28/2019 5:46:38 PM





SUNDAY

Underwriter to the stars Philip Duffin, Head of Space for Occam Underwriting, describes the intricacies of

writing coverage for those exploring “the final frontier.”

Generally speaking, what kind of

expertise is required when it comes to space

underwriting?Space insurance is a very niche specialty line, underwriting highly technical risks. Almost all satellites are unique, designed to fulfill only their very particular role, whether that be providing television broadcasts over China, Internet over Africa or high-resolution radar imaging globally. However, they are not only unique – they are also prototypical, with advanced relatively unproven technologies being flown in inhospitable environments, with high levels of radiation and extreme temperatures.

Not all underwriters approach this in the same way, but we have always believed it is extremely important to have a highly technical approach reliant on detailed engineering expertise. This includes good academic knowledge but also real-world experience in the space industry. The use of prototypical engineering means we not only have to look at the design of a satellite or rocket, but also at how it is going to be tested and integrated.

Of course, we are not just about engineering. We have to make a profit from underwriting, so we have not overlooked the importance of insurance experience. So as well as our team having the technical space expertise, we complement this with an understanding of how to underwrite a balanced portfolio of risks.

How would you characterise the size of the field for clients looking for space coverage? The satellite insurance market comprises approximately 40 direct insurance carriers, made up of insurance companies, Lloyd’s syndicates and managing general agents (MGAs) supported by international insurers and reinsurers. Total market capacity is in

the region of $1 billion, which supports individual risks with typical sums insured of $200 million and peak values up to around $600 million. Therefore, typical clients have a broad selection of providers to rely upon. The capacity available for less typical risks may be more limited as insurers tend to be much more cautious, perhaps for a very advanced satellite, or a rocket launching for its first time; however, as you can see generally there is ample capacity available.

This may be about to change somewhat, as a couple of very large losses have hit the market since the beginning of this year. The space market was rocked with the total loss of the Worldview 4 satellite, and the launch loss of Falcon Eye 1. These two losses combine to approximately $600m, putting the market into a loss-making position for a second consecutive year. Consequently, it is likely that some of the participants may withdraw or reduce their capacity in the coming months. Pricing is already showing large upward movement and we expect departing capacity could drive this further.

What are some of the more unusual exposures? Almost all space exposures are interesting in their own way. Satellites might be launching on a new type of rocket, maybe they have giant antennas that unfold in orbit (we have seen designs of up to 25 metres), or maybe they have a new type of imaging technology. However, there are some of particular interest: • Missions to the International Space

Station – these might be manned or just carrying cargo of supplies and experiments. There are currently several new capsules in development to perform this job, so these missions will be more diverse in the next few years.

• New launch vehicles – it’s unlikely we’d be insuring the first launch of a new rocket, but the first handful of

launches are always nervous affairs. Rocketry is notoriously difficult even with today’s technology, and you only have to look at recent launch history to see that demonstrated.

• In-orbit servicing – several manufacturers are designing new satellites that are able to go and provide servicing to other satellites on orbit. This could be just to transport a satellite around or provide station keeping, but some projects are looking at in-orbit assembly or even refuelling.

Looking to the future, we anticipate insurance opportunities arising from the construction of the “Lunar Gateway” space station with plans to return astronauts to the moon by 2024.

What does “Launch Reflight Guarantee” cover? Launch reflight (or risk) guarantee is a type of cover that insurers offer to launch providers rather than our typical clients, the satellite operators. Launch service providers may offer a Launch Risk Guarantee (LRG) to their prospective clients, under which in case of a total launch failure, the launch service provider will provide a replacement rocket to launch a replacement satellite. Insurers offer LRG cover to the launch service provider to enable this. l


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For more information and sponsorship opportunities please contact Goran Pandzic on [email protected]

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BRIN

GIN

G Y

OU

TH

E N

EW

S F

RO

M T H E R E N D E Z - V O U S D

E S

EP

TE

MB

RE

FO

R 2

5 Y

EARSSince 1994

SPON

SORE

D BY

Inside

this

issue

…

Presid

ent

welcom

es yo

u to

‘99 R

ende

z-

Vous ...

......

.....2

M&A do

wn by

70%, r

epor

t

states

......

......

.3

Pressu

re to

demut

ualis

e

incre

ases

......

..3

Inter

view w

ith

Guy C

arpe

nter

’s

CEO Sal

Zaffino

......

.....4

Surve

y rev

eals

ceda

nts’

wish

list ..

......

......

...6

CME st

arts

weath

er

tradin

g......

.....6

Repor

ter

edito

rial te

am:

cove

ring t

he

world

’s pr

emier

reins

uran

ce

meetin

g......

....7

Asian n

ews..

....8

The ear

thquak

e that

hit Izm

it,

Turkey

on Augu

st 17

is pro

viding a

wake-u

p call f

or insu

rers,

reinsu

rers

and ri

sk m

anag

ers w

ho think th

ey

know their

cata

strophic

exposu

res.

This is

becau

se th

e quak

e did not

react

as th

e industr

y had

expec

ted.

The ear

thquak

e’s pat

h trav

ersed

two fa

ult sys

tems.

Previously

,

earth

quakes

in this

region hav

e

follo

wed th

e line o

f the N

orth

Anatolea

n fault,

but acc

ording t

o

findings

by a te

am fr

om risk

modelling c

ompany R

isk

Man

agem

ent S

olutions (

RMS) s

ent

out to in

vesti

gate

the e

ffects

of the

earth

quake,

this

partic

ular

earth

quake c

rosse

d over o

nto th

e

Düzce f

ault.

This sh

ould se

t alar

m bell

s

ringin

g for i

nsure

rs an

d rein

sure

rs

that

have e

xposu

res i

n other

earth

quake-p

rone a

reas

,

partic

ularly

those

with

com

plex

many p

ropert

y cat

-writ

ing

reinsu

rers w

ith a

global

portfolio

.

The Tupra

s oil r

efinery

in Iz

mit, hit

hard by t

he ear

thquak

e, was

insured

for $

1.116

bn. One l

ocal

insurer

reinsu

red 99

.8% of it

s

exposu

re to

this

risk to

the

internat

ional mar

ket. G

IO, a

lread

y

crippled

by losse

s fro

m its

reinsu

rance

divisio

n in th

e firs

t half

of 199

9, has

admitt

ed ex

posure

to

the e

vent a

nd has put p

rovis

ions in

place t

o cove

r up to

$25m

of losse

s.

However,

GIO

has sa

id that

it

doesn’t e

xpec

t losse

s to ex

ceed

A$5m an

d describ

ed th

is fig

ure as

not mat

erial.

Insu

rers a

nd reinsu

rers c

an al

so

learn

from th

e pro

perty d

amag

e

that

was

seen

in T

urkey

. The I

zmit

quake,

which m

easu

red 7.

4 on th

e

Richter

Scale,

destro

yed 11

5,000

buildings

in th

e city

and

surro

unding area

s.

The high

leve

l of m

ateri

al

destru

ction an

d loss

of human

life i

s

due in par

t to th

e poor c

onstructi

on

of man

y build

ings. M

any o

f the

structu

res th

at co

llapsed

complet

ely

were pref

abric

ated

concre

te

buildings

with

very

little

support

or

metal fr

amew

ork. T

he booming

population an

d industr

y in T

urkey

,

partic

ularly

in area

s like I

zmit,

mean th

at build

ings hav

e bee

n

erecte

d quickly

and w

ith lit

tle

superv

ision by t

he auth

orities

.

The ear

thquak

e may

only

com

plicat

e this

problem

. With

200,0

00 peo

ple m

ade h

omele

ss,

ther

e will

be an ev

en gr

eater

fault s

ystem

s such

as in

Cali

forn

ia.

“Peo

ple ten

ded to

assu

me t

hat 90

%

of ear

thquak

es unzip

along a

straig

ht line,”

says

Andre

w

Coburn, m

anag

ing d

irecto

r of

RMS in

form

atio

n publishin

g.

“This

is not t

rue.”

If an

earth

quake s

witches

onto a

differe

nt fau

lt sys

tem th

e effe

cts ca

n

be very

differe

nt than

if it f

ollows i

ts

expec

ted co

urse. I

t mak

es

earth

quake r

outes –

and th

erefo

re

insured

exposu

res an

d losse

s –

much m

ore diff

icult t

o predict

.

Reinsu

rers d

o not routin

ely ta

ke

into ac

count t

he abilit

y of

earth

quakes

to sh

ift fr

om one

syste

m to an

other,

says

Coburn

,

and so

can be c

augh

t out.

RMS es

timat

e tota

l insu

red

shock

losse

s could re

ach $2

.75bn,

including i

ndustrial

losse

s of u

p to

$2bn. T

he insu

red lo

sses r

esulti

ng

from th

e ear

thquak

e are

likely

to hit

Sunday Sep

tember

5 19

99 R

eacti

ons R

ende

z-Vou

s Rep

orter

1

Reacti

ons

the fin

ancia

l mag

azin

e for t

he glo

bal in

sura

nce m

arket.

Rendez

-Vou

s Rep

orter

Day 1

Sund

ay

Septe

mber 5

1999

EARTHQUA

KE FINDINGS

COULD

HAVE IM

PLICA

TIONS F

OR OTHER

QUAKE-P

RONE A

REAS

Insura

nce i

ndus

try m

ust le

arn

hard

lesso

ns fro

m Izmit q

uake

SPON

SORE

D BY

Contin

ued o

n pag

e 2…

Cali

forn

ia ins

uran

ce co

mmission

er

Chuc

k Qua

cken

bush

will

be at

Bade

n Bad

en ne

xt m

onth

to dr

um up

reins

uran

ce su

ppor

t for th

e Cali

forn

ia

Earth

quak

e Aut

horit

y (CE

A), the

vehi-

cle w

hich i

s desi

gned

to en

sure

cont

in-

ued e

arthq

uake

cove

r for C

alifo

rnia

homeo

wners.

Quac

kenb

ush w

ill als

o be

visiti

ng re

insur

ers in

Lond

on, M

unich

and Z

urich

.

Jack

Graham

of br

oker

EW Bl

anch

,

who is

coor

dinati

ng th

e rein

suran

ce

prog

ramme o

n beh

alf of

the C

EA, sa

id

that

it was

impo

rtant

to gi

ve th

e rein

-

suran

ce m

arket

full i

nfor

mation

on th

e

amen

dmen

ts to

the o

rigina

l CEA

legis

-

lation

, even

thou

gh he

felt t

hat th

ey

were no

t sign

ifica

nt.

Form

al req

uests

for re

insur

ance

cove

r will

begin

as so

on as

the s

tart d

ate

for th

e CEA

is co

nfirm

ed. R

ichard

Wieb

e, dep

uty in

suran

ce co

mmission

er,

said

that th

ey w

ould

like t

he CE

A to sta

rt

opera

tions

on Nov

embe

r 1, b

ut tha

t

Decem

ber 1

was

a mor

e rea

listic

date.

Graham

said

that

the C

EA w

ould

again

be lo

oking

for $

1.8bn

in re

insur

-

ance

capa

city a

nd w

as op

timist

ic th

at it

could

be se

cured

again

. He a

lso ex

pects

the c

apac

ity to

come f

rom br

oadly

the

same s

ource

s tha

t had

committ

ed to

the

CEA ea

rlier

this y

ear b

efore

the o

rigina

l

prop

osals

faile

d in t

he Ca

lifor

nia st

ate

legisl

ature.

Berm

uda c

atastr

ophe

reins

urers

, led

by Pa

rtner

Re, p

rovid

ed m

ore t

han a

quart

er of

the o

rigina

l total

and t

heir

slow ra

te of

prem

ium gr

owth

this y

ear

means

that

they

shou

ld sti

ll hav

e ample

capa

city l

eft fo

r the C

EA.

Wieb

e exp

resse

d con

fiden

ce th

at

the $

1.5bn

of co

ver r

equir

ed fr

om th

e

capit

al mar

kets

thro

ugh a

n issu

e of

earth

quak

e risk

bond

s wou

ld be

forth

-

comin

g. Th

e cap

ital m

arke

ts co

ntrib

u-

tion i

s req

uired

beca

use t

he $1

.8bn

repres

ents

the m

axim

um ex

posu

re

that

the c

onve

ntion

al rei

nsur

ance

marke

t will

acce

pt.

After m

odifi

catio

ns to

take

acco

unt

of co

nsum

er ob

jectio

ns, th

e leg

islati

on

was ac

cepte

d by b

oth ho

uses

befo

re th

e

end o

f last

month

leav

ing on

ly th

e for

-

mality

of sig

natu

re by

the s

tate g

over-

nor, P

ete W

ilson

, who

has s

ignall

ed hi

s

willing

ness

to do

so.

rendez-

vousrepo

rter

COME AND

SEEUS

ATTHE

SALON NAÏA

DE‘D’

INHÔTE

L LOEWS

inside…

•Gu

y Car

pent

er pr

eside

nt an

d chie

f exe

cutiv

e offi

cer B

rando

n Sweit

zer

interv

iewed

•AM

Best

affir

ms Fren

ch re

insur

ers’ C

PA ra

tings

•RA

A res

ults s

how Em

ploye

rs Re

has p

oor h

alf ye

ar in

US

•Sp

ort:

Engli

sh Pr

emier

Leag

ue re

sults

S UN

DA Y

8 septem

ber 199

6

day 1

Calif

ornia

Earth

quak

e Aut

horit

y

to se

ek su

ppor

t at B

aden

Bad

en

In bri

ef

•Mervin

Hollan

d and

Mich

ael S

ulliva

n

have

been

appo

inted

resp

ectiv

ely

presid

ent a

nd vi

ce pr

eside

nt of

Berm

uda-

based

Inter

-Oce

an

Reins

uranc

e, whe

re th

ey w

ill be

respo

nsibl

e for

produ

cing a

nd

unde

rwrit

ing a

varie

ty of

finite

risk

trans

fer pr

oduc

ts.

•Stan H

ardie,

gene

ral m

anag

er of

Skan

dia In

terna

tiona

l’s UK

bran

ch, h

as

been

elec

ted a

depu

ty ch

airman

of

Lirma (

the L

ondo

n Int

ernati

onal

Insura

nce a

nd Re

insura

nce M

arket

Asso

ciatio

n).

•Willi

s Fab

er & D

umas

has s

econ

ded

Steve

n Harw

ood t

o Tok

yo as

liaiso

n

repres

entat

ive fo

r its

Lond

on-b

ased

Japan

Reins

uranc

e Tea

m.

•Hans-J

ürgen

Schin

zler, c

hairm

an of

Munich

Re’s

manag

emen

t boa

rd,

report

edly

admitt

ed la

st wee

k to

Germ

an ne

wspap

er Bö

rsen Z

eitun

g

that

the c

ompa

ny’s

$3.3b

n acq

uisiti

on

of Am

erica

n Re l

ast m

onth

wou

ld

have

a ne

gativ

e impa

ct on

its 1

997

earni

ngs.

The d

eal is

expe

cted t

o be

comple

ted by

the e

nd of

the y

ear. H

e

was als

o quo

ted as

sayin

g tha

t the

re

were “n

o viab

le po

ssibil

ities”

at

presen

t for

any f

urthe

r tak

eove

rs in

the r

einsu

rance

indu

stry.

Inside this

issue…

Cat models c

ome

under fire .....

..3

Counting the cost

of Katrin

a .......3

Nessi quits

PartnerR

e to

form

CatalystRe .....5

Katrina will

halt softening

rates..........

.....5

Rockridge Re to

benefit post-

Katrina.....

......7

Skandia’s future

in investors’

hands ..........

...7

Katrina will

dominate Monte

Carlo talks .....

.8

Reactions 2005

leaders’

survey.....

......10

Reactions

Awards 2005

lunch.....13 & 15

Appeal of

Rendez-Vous

has not

waned..........

.16

For the th

ird year ru

nning

Standard & Poor’s (S&P) has

downgraded a reinsurer

to the

triple-B

range just b

efore t

he Monte

Carlo Rendez-

Vous. Berm

udian

insurer and rei

nsurer Alea

has been

plunged into crisis

by the

downgrade of its

financia

l strength

rating to BBB+ from A-. I

t is now

considerin

g its options, o

ne of

which is t

o find a buyer.

Alea was planning a $210m rig

hts

issue to

shore up its

capital. But th

e

downgrade could make ca

pital

raising diffic

ult for th

e company.

“Right now, due to the d

owngrade

happening so recently, th

e board

and the managem

ent team are

review

ing all strateg

ic options fo

r the

company,” Mark Ricci

ardelli, ch

ief

executive of A

lea, to

ld Reactions on

Friday when asked about w

hether

the rights is

sue would procee

d.

S&P says Alea

’s poor opera

ting

perform

ance and disappointing fir

st

half resu

lts are l

argely to blame fo

r

the downgrade – not ju

st its

capitalisation. “Capitalisa

tion is not

the main iss

ue,” S&P cre

dit analyst

Simon Marsh

all told Reactio

ns

before t

he downgrade. “

Of more

concern to us is

the managem

ent

credibility

and operating

perform

ance of th

e company.”

Alea posted a $25.9m profit for

the first h

alf of 2005, a 47%

decrease on the same period last

year. The decrease was partly

caused by a $34.7m charge to boost

its reserves. T

his also

hit its

combined ratio, which jumped to

101.9% compared with 95.8% in the

same period last y

ear.

Marshall re

iterated

S&P’s

concerns about A

lea’s perfo

rmance

investment in

to their own

underwriting capabiliti

es and take

advantage of improved rates ra

ther

than buy a company like Alea that

has legacy problems.”

Another alter

native is that it

could

try and co

mplete the ri

ghts issue. I

t

may have to do this a

nyway. Rating

agency AM Best also

has the

company’s A- fin

ancial str

ength

rating under review

with negative

implications. I

ts main co

ncern is

Alea’s le

vel of ca

pitalisation.

AM Best has not in

dicated

whether it plans to

downgrade Alea

further. B

ut this w

ould be more

likely if it does not ra

ise capital.

“This will h

inge on the capital

situation, if

and when there is any

rights issu

e,” Gradidge says when

asked if furth

er downgrades are

likely.

The uncertainty surro

unding the

company’s future will b

e a big

worry for A

lea’s cedants.

Ricciardelli was able to offer lit

tle

comfort when asked about th

is.

“The management and board will

continue to communicate with its

employees, custo

mers and

shareholders. The management

team has been and will continue to

address the iss

ues that th

e company

may have,” he says.

In 2003, S&P downgraded

French reinsurer Scor to BBB+

from A- after a str

ing of losse

s and

reserve increases. The following

year, Swiss

reinsurer Converiu

m

suffered a similar fa

te. S&P

downgraded it to BBB after it

discovered a big hole in its US

casualty reserves. Converiu

m is

now rated BBB+ and Scor was

recently upgraded to A-.

in a statem

ent that acco

mpanied the

downgrade. “The downgrades f

ollow

last week

’s announcem

ent of Alea’s

results f

or the fi

rst half o

f 2005,

which did not m

eet the ex

pectations

of S&P or Alea’s m

anagement and

continued the disappointing

operating perfo

rmance t

rend of

recent years,”

he said.

Alea changed its stra

tegy

following its firs

t half results.

It

wants to concen

trate m

ore on global

property insurance b

usiness and les

s

on long-tail US casualty rei

nsurance.

But S&P believes these changes

alone may not be enough to help it

achieve its operating goals. A

nd the

downgrade now throws the

company’s future into doubt.

One option would be for it to

find a buyer. But in

the wake of

Hurricane Katrin

a, analysts do not

think there will be much interest i

n

the company.

“We cannot see any tra

de buyer

that would want to

invest in Alea at

this stage,” says R

ichard Gradidge,

analyst at in

vestment bank Numis

Securities. “

Everything has changed

so much as a result of K

atrina.

Companies will w

ant to direct

Sunday September 11 2005 Reactions Rendez-V

ous Reporte

r 1

Reactions

the financia

l magazin

e for th

e global in

surance market

Rendez-Vous R

eporter

Day 1

Sunday

September 1

1 2005

S&P MAKES CRITICAL DOWNGRADE JUST BEFORE RENDEZ-VOUS

Alea in cri

sis afte

r downgrade

SPONSORED BY

Mark Ricciardelli

Reactions Rendez-Vous Reporter | www.reactionsnet.com

Sunday 14 September 2014 | 1

#MCRe2014

RENDEZ-VOUS REPORTER

Changing times

demand innovationLead sponsor

Rendez-vouS de SeptembRe | september 13-17 2014 | monte caRlo, m

onaco

sponsor

sunday | 14 september 2014

“It feels a bit lik

e Groundhog Day”,

said Alex Moczarski, President and

CEO of Guy Carpenter and

Chairman of M

MC International,

as he kicked off this year’s Monte

Carlo Rendez-Vous at the Guy

Carpenter presentation in the Hotel

de Paris. “I’m

in the same room; I

even found a cufflink that I left

behind,” he joked.

He noted that prices had again

been falling significantly, and that

“even in the aviation sector, with this

year’s prominent and tragic losses,

abundant capacity is expected to

mute upward repricing.”

He said that against

a tough background Guy

Carpenter “continues to

deliver

excellent results”.

In the US, “Guy Carpenter’s

largest geography, (i

ncome) was

effectively flat. This w

as a good

achievement given heavy rate

decreases, especially in the

catastrophe segment.”

David Priebe, vice chairman,

said that “the market continues to

be challenging, essentially a

continuation of the themes th

at

have dominated us for th

e past

two or three years –

in the US,

excess capacity,

the influence of

alternative markets, and lower

loss activity all continue to drive

pricing down”.

He said that, as the industry

headed into the June and July

renewals there was lit

tle doubt that

prices would continue to fall. But

the size of the decrease was less

clear. Priebe observed that many

programmes saw substantial

reductions in 2013, with the

double-digit decreases mid-year in

2013 being partially offset by firmer

QRE0005_MCRV_agric-aviation_74x208.indd 1

08/09/2014 14:41

p15

p4

p20

p8

>>

alex moczarski

Sunday

September 7

2008

SponSored by


Rendez-vouS de SeptembRe

SeptembeR 7-10 2008

monte CaRlo, monaCo

Sunday September 7 2008 �

Reactions Rendez-Vous R

eporter


preview

uncertain

ty clouds Rendez-v

ous

inSide thiS

iSSue…

ike to gain

strength ...........

3

Scor on review

for possible

upgrades .........4

pockets of

hardening in

marine ...........

..4

Gustav losses

unlikely to reach

$10bn ...........

...7

rendez-vous

reporter’s top 15

stories ............

..9

Leaders debate

the state of the

market ..........

.13

reactions rev

eals

the world’s best

firms ...........

......14

Fox and Stanard

unveil new

broker ..........

..17

Guy Carpenter

releases casualty

cat model .....

..17

riSKbitz .......

..18

racing at the

rendez-vous ..20

Turbulent w

eather in the Atlantic,

storm

y conditio

ns in the fi

nancial

markets and declin

ing prices fo

rm

the frighten

ing backdrop to the

Monte Carlo

Rendez-Vous 2008.

Hurricane G

ustav spared

New

Orleans and en

ergy infra

structu

re

in the Gulf b

ut delegates

travelli

ng

to Monaco this w

eekend will b

e

keeping an eye o

n weather reports

about Hanna and Ike as th

ey get

organised in the C

aribbean.

In addition to bein

g hit by cat

losses, m

any executives w

ill be

hoping that their

balance sheet

s

are not fu

rther s

tressed by the

continuing turbulence i

n the capital

markets.

But the re

insurance underw

riting

cycle rem

ains the p

rimary

determ

inant of the co

ndition of th

e

reinsurance i

ndustry, acco

rding to

rating agencies. “Prici

ng continues

to decline st

eadily in both property

and casualty lines o

f business,

”

says Pano Karambela

s, senior

analyst at M

oody’s, writi

ng in its

newly published Global R

einsurance

Industry Outlook.

Karambelas sa

ys pricing rem

ains

near or above technica

l levels

because r

ates have n

ot cheapened

enough to reduce u

nderlying

retentions, a

dding “though we

expect that prim

ary carriers h

ave

begun to actively

evaluate the

lower alter

native layers

for casualty

business

”.

Like Moody’s, r

ating agency Fitch

is cautiously optim

istic and gives t

he

reinsurance m

arket a sta

ble outlook

in its 2008-2009 Global R

einsurance

Review & Outlook. The F

itch rep

ort

also identifi

es weakening rates,

unstable c

apital markets,

a lack

of large-sc

ale catastro

phe events

and limited

merger a

nd acquisition

activity as th

e main iss

ues affec

ting

reinsurer

s.

For non-life re

insurers, F

itch

predicts

an underwriti

ng profit in

2008, assuming norm

al catastro

phe

losses, b

ut says net w

ritten prem

iums

are likely

to decrease b

ecause o

f

softening rates.

“While underw

riting

margins are likely

to continue to

erode over t

he near te

rm, unless

there is a

major catastro

phe event

the market w

ill continue to

generate

reasonable r

eturns on capital,”

Mark Rouck, senior direc

tor in

Fitch’s in

surance rating group, sa

ys

in his commentary.

“Fitch does n

ot

see a tip

ping point in the fo

reseea

ble

future at w

hich rei

nsurers’ o

perating

perform

ance and market c

onditions

no longer support a

stable r

ating

outlook.”

But one or tw

o big shock loss

events could ch

ange the p

icture

and Moody’s sa

ys reinsurer

s are

vulnerable t

o the impact o

f inflation

on underwriti

ng margins over

the medium ter

m. “Firms w

ith

significant property

portfolios

are exposed

to recent price

spikes in basic

inputs to building

materials, a

phenomenon not

captured in catastro

phe models,

”

Karambelas sa

ys.

Although the market d

oes not

face widesp

read capital ra

ising

needs, a

large catastro

phe event

could stress

the financia

l flexibility

of some ca

rriers,

especia

lly smaller

start-u

ps or firm

s with outsiz

e

losses, M

oody’s says in

the report.

Gustav should be view

ed as a near

miss for th

e market a

nd emphasise

s

the need

for reinsurance c

ompanies

to maintain adequate risk

-adjusted

pricing as w

ell as te

rms and

conditions, s

ay the rating agencies

.

David Stephenson, direc

tor in

Fitch’s in

surance rating group,

says non-life re

insurers have

maintained underwriti

ng discipline

more succe

ssfully than prim

ary

insurers over t

he last y

ear. He sa

ys

this disci

pline is lik

ely to co

ntinue

over the n

ext �2 to �8 months, as

illiquidity in the ca

pital markets

makes it diffi

cult for re

insurers

to replenish

their balance s

heets

following a loss.

delegates

get rained on at a prev

ious

meeting, but how will t

hey cope w

ith the

financial storm clo

uds brewing this y

ear?

“Pricing co

ntinues to decline

steadily in both property a

nd

casualty lines of business.”

Pano Karambelas, senior analyst

at

Moody’s

Inside thisissue…

Florida preparesfor thirdhuricane…3

GE renames its insuranceunits...............5Kiln appointsreinsurancemanager.........5

Aviva exitsAsian insurancebusiness..........7Converium hiresnew managingdirector..........7

Reactions 2004 leaders’survey ..........10Schwarzeneggerreforms wildfirecover............15

Benfield postsimproved results ..........15Analystswelcome Scor’snew plan .......16

Dirk Lohmann, chief executiveofficer of Converium, arrives inMonte Carlo this week expecting atough time. Converium has had adisastrous run-up to this year’sRendez-Vous. At the end of July itannounced that it would increasereserves by up to $400m. Themeasures it subsequently took toincrease its capital adequacy werenot enough to prevent AM Best,Moody’s and, on Friday, Standard& Poor’s (S&P) plungingConverium’s ratings into the triple-

B range.Converium’s woes are likely to be

a talking point in many of theconversations in the Café de Parisduring the next week. “I’m sure wewill be a central theme,” Lohmanntold Reactions last week. “But ourclients have been very supportive.”

These comments came before theS&P downgrade. Converium willno doubt now face even tougherquestions in meetings with clients inMonte Carlo. The first challengewill be to convince clients that thecompany is still financially strong inspite of the downgrades. Lohmannhad pinned his hopes on S&P’s A-rating, saying clients in Europeplace more emphasis on ratingsfrom S&P than AM Best orMoody’s. But these hopes weredashed on Friday when S&Pdowngraded Converium by twonotches to BBB.S&P cited its confidence in

Converium’s management as one ofthe reasons for its downgrade onFriday. “The rating actions reflectStandard & Poor’s view thatmanagement credibility has beenimpaired and concerns regarding

maintain its franchise. Today’srating action by Standard & Poor’s,in conjunction with AM Best’srecent downgrading of Converium,has required changes to thecompany’s global business planwhich will be communicatedshortly. As a consequence of therating action taken by Standard &Poor’s, Converium is reviewing alloptions with its banks concerningthe proposed share issue announcedon September 3 2004,” it said.

But the downgrades have alreadyforced Converium into one changeof plan. It will no longer writebusiness from the US. Thecompany originally intended torun-off its core US operationConverium Reinsurance (NorthAmerica) and boost capital atanother US subsidiary, ConveriumInsurance (North America), by$350m. It will now run off all USoperations and use the proceeds ofthe rights issue to boost itsEuropean operations.Converium will need to explain

to clients why it has made thischange. It is not the first time thatConverium has made an about-facein recent weeks. Converium hadoriginally announced that its rightsissue would raise between $250mand $400m, but eventually decidedthat it would be $420m.Converium will also need to

convince clients that its reservingwoes are now behind it. Theeventual size of Converium’ssecond-quarter reserve increase was$385m. But an actuarial review byconsulting firm Tillinghast-TowersPerrin suggested that Converium’s

the Converium group’s ability toretain and attract business,” theagency said in a press release.

The rating agency also said that alot now depends on whetherConverium can successfully raisecapital. The Swiss reinsurer’s rightsissue has been underwritten by asyndicate of banks for $420m butwill need approval at anextraordinary general meeting on

September 28.But S&P added that even thismay not be enough to get thecompany back into the single-Arange. “Potential upside exists if thegroup’s rights issue proceeds asplanned and the group retains thesupport of its key cedants andbrokers,” it said. “Should this bethe case, Standard & Poor’s mayraise its long-term ratings onConverium AG to BBB+.However, potential downside existsif the planned rights issue fails andthe group fails to retain the supportof its key cedants and brokers.”

Converium said in a press releaseon Friday that it was disappointedwith the downgrade. “Converium,however, will make all efforts to

Sunday September 12 2004 Reactions Rendez-Vous Reporter 1

Reactionsthe financial magazine for the global insurance market

Rendez-Vous ReporterDay 1

Sunday

September 12 2004S&P PLUNGES CONVERIUM INTO TRIPLE-B RANGEConverium loses S&P A rating

SPONSORED BY

Dirk Lohmann

Continued on page 3…

1

Rendezvous Reporter

Monday 5-9-94

The impending revision of Super-

fund legislation, persisting poor

profitability and new competition

continues to impact on global

insurer and reinsurer security. As a

result, the struggle to make any sort

of headway in the ratings game has

become a major talking point at this

year’s Rendez-vous. Tomorrow, Kaj

Ahlmann, chairman of Employers

Re, leads a debate on evaluating

reinsurer security and Bob Mebus,

managing director of Standard &

Poors Rating Group will kick off with

a discussion of the outlook for

global ratings in the next two to

three years. Mebus says that he is

not optimistic that ratings will

improve in the short term. “The

insurance industry has been living

off its capital for far too long and

profitability has not carried its fair

share of the load,” he says.

Mebus points to US primary com-

panies plagued by poor profitability

and reserve inadequacy; Japanese

companies hampered in their efforts

to reduce costs by strict ethical

codes; a softening personal lines mar-

ket in the UK and; stability, at best in

Continental European companies.

For the most part, however, the

outlook for reinsurance ratings is

fair. But there are significant caveats,

according to Mebus. Notably, S & P

is reviewing suggested changes to

the US Superfund and the financial

burdens associated with environ-

mental claims which weigh down US

reinsurers. S & P has identified

insurers and reinsurers involved

prior to 1986 in providing the bulk of

liability coverages under which EIL

claims are being made. In addition, S

& P has pinpointed those insurers

currently providing the bulk of these

commercial coverages.

Under the compromise approved

by the House ways and means Com-

mittee last month, $8.1bn of funding

for the Environmental Insurance

Resolution Fund (EIRF) would be

raised by taxes on domestic and for-

eign insurers/reinsurers. The tax

will be based partly on their partici-

pation in EIL covers during the

period from 1968 to 1985, and partly

on prospective participation.

Mebus, who takes to the podium

at 9:30 tomorrow, is expected to

describe the relevance of impending

change for European companies. He

thinks that a similar model will be

adopted to fund EC liabilities.

Security worries persist

AGENDA

Monday

18:00 Welcome cocktail on the

Casino terrace open to

registered delegates

Tuesday

09:30 Panel discussion “How to

evaluate the security of

reinsurers” chaired by Kaj

Ahlmann, Employers Re.

Speakers include Robert J

Mebus of Standard &

Poors, Pierre Florin of Axa

Assurances, and John

Lombardo of Munich

American Re, The Monte

Carlo Convention Centre

auditorium

Wednesday

09:30 Paper by Pierre Florin,

president of the Assemblée

Pléniere des Société

d’Assurances Dommages

The Monte Carlo Convention

Centre auditorium

21:00 Dinner & Entertainment at the

Salle des Etoiles, Monte

Carlo Sporting Club. Black tie

INSIDEMatthew Harding, chairman of

Benfield Group talks to the

Reporter about his hopes and

fears for the future ..............

.........2

Lloyd’s anticipates more

corporate capital ..............

...........2

Reuter Insurance Briefing:

Keep on top of market news as it

surfaces ..............

..............

...........3

Bermuda is to tighten up its 1987

insurance and reinsurance legisla-

tion. The changes, which have just

been announced by the govern-

ment, aim to make the domicile’s

rules reflect more accurately the

development of non-captive busi-

ness on the island. The new regula-

tions, which will not affect the

operations of single parent captives

insuring only the risks of their own-

Bermuda rule rewrite

Rendezvous Reporter

MONTE CARLO RENDEZ-VOUS 1994

DAY TWO

Monday 5th September 1994

Come and see us at the Salon

Naïade “A” in Hôtel Loews


ers and affiliates, will come into

force by the end of 1995.

The Bermuda government’s pro-

posals, announced by the minister

of finance David Saul, include

moves to:

• Set higher minimum levels of cap-

ital and surplus for all companies

except so-called “pure” captives;

• Adjust solvency margins to a level

consistent with international

standards and in some cases

above other countries.

Sunday

September 6 2009

SponSored by



SeptembeR 6-9 2009

monte CaRlo, monaCo




InSIde thIS

ISSue…

Guy Carp

bullish .............3

rates not

reflecting risk of

inflation ...........4

Second tier

but not second

class ................

7

heritage Kane

becomes Kane

Group ...............7

raters’ gloomy

outlook for

reinsurers ........9

Aon benfield

feeling good one

year on ...........10

Global Awards

nominees

revealed .........10

Question time

with Stefan

Lippe ..............1

3

reinsurers

receive boost

from crisis .....15

rISKbitz .........17

racing around

the rVS ..........19

Monte CArLo preVIew

balance of power shifts to buyers

As the market arrives in Monte

Carlo for the Rendez-Vous, the

balance of power in this year’s

pre-renewal negotiations is moving

towards reinsurance buyers,

brokers report.

Reinsurers were one of the few

sources of capital around when

the capital markets were effectively

closed late last year and early this

year. But Dominic Christian, CEO

of Aon Benfield International,

says firms will once again be able to

access the capital markets fo

llowing

a loss and that this gives buyers

more power.

“Probably the balance is

swinging more towards buyers. The

pressures of capital being supplied

locally after a loss have improved.

The industry will be able to raise

capital post loss,” Christia

n told

the Rendez-Vous Reporter. “That

moves the pendulum of negotiation

towards the buyer.”

In a separate interview, Bryon

Ehrhart, CEO of Aon Benfield

Analytics, agrees that reinsurance

buyers will have more power to buy

the limits they may have wanted last

year. But he adds that they will not

have everything their own way.

“Cedants think they have more

power in this market but they are

not all powerful,” says Ehrhart.

According to Ehrhart, cedants

are likely to benefit from what

he describes as an “incremental

softening” of the reinsurance

market. He is quick to point out that

this will not mean a return to soft

market conditions, however.

“We will witness an incremental

softening but we will still have a

disciplined reinsurance market.

There have been poor results

for reinsurers with exposure to

structured finance and fixed income

classes but that doesn’t mean rates

can’t go lower,” he says.

Buyers are certainly taking

nothing for granted. Some believe

it will be hard to get price cuts out

of reinsurers. Jonathan Turner,

reinsurance underwriting director at

Brit Insurance, believes the situation

will not be entirely positive for buyers.

“As a buyer, something we have

got to think carefully about is not

to have unrealistic expectations,”

Turner says.

“It will be a tough time for buyers

who are cutting costs and hoping to

see weak links in the underwriting

community because I don’t see that

happening. The market continues

to harden and I don’t see any

reason why reinsurers would turn

round and give away pricing. Even

without a large loss I don’t see that

happening.”

Insurance buyers are feeling

squeezed because a disconnect

between insurance pricing and

reinsurance pricing has developed.

Despite property/casualty insurers

being hit harder than reinsurers

by investment losses, reinsurance

pricing has been the first to react.

Reinsurers have been able to push


“The industry will be

able to raise capital post

loss. That moves the

pendulum of negotiation

towards the buyer.”

Dominic Christian, CEO of Aon Benfield

International

SPONSORED BY

Inside this

issue…

Losses at

Australia’s HIH

climb to

A$1.3bn .........2

Foreigners

struggle to make

an impact in

Japan; Gerling

buys NCM......4

New York Life

aims high in

Philippines .....6

World Cup cat

swap deal........7

Munich Re’s

earnings

soar............

..12

International

business boosts

AXA’s first

half ............

..14

Lloyd’s has predicted it will m

ake a

loss of £1.39bn ($2bn) for 1999.

This new loss forecast is

larger than

most estimates and is lik

ely to dent

confidence in the market. But one

analyst believes Lloyd’s is still

underestimating its lo

sses.

Moody’s has increased its loss

estimate for 1999 to £1.7bn –

equivalent to 17.7% of the market’s

capacity. This prediction is much

worse than other analysts: Chatset

predicts a loss of £1.25bn while

Fitch IBCA states that Lloyd’s 1999

result may deteriorate to £1.5bn

before syndicates’ accounts are

closed at the end of this year.

Moody’s has also made a

substantially higher estimate of the

market’s losses in 2000 than Lloyd’s

itself. Lloyd’s made an initial

projection of a loss of £694m for

2000. However, it points out that

under Lloyd’s three-year

accounting system, many policies

written during the year are still

open to claims, meaning the loss

may increase before the year’s

accounts are closed.

Moody’s believes that in 2000 the

market will make a loss of £1.1bn,

or 10.5% of capacity, in 2000. It

also believes the gloom will

continue in 2001, with Lloyd’s

making a loss of £530m in that year.

If Moody’s estim

ates are correct

then Lloyd’s will make billion-

pound losses in three consecutive

years. The market made a £1.06bn

loss in the 1998 underwritin

g year.

Overall, Moody’s predicts th

at

market losses between 1998 and

2001 could total as much £4.3bn.

Lloyd’s states that “1999 is

widely acknowledged to represent

would make a loss of approximately

£1.3bn in 2000.

But Lloyd’s believes that

improvements in syndicates’

forecasting techniques will make the

same level of deterioration unlikely.

In an interview with Reactions in

September’s issue, Nick Prettejohn,

chief executive of Lloyd’s, says:

“Lloyd’s syndicates have not been

good at [forecasting their results

accurately] and they must get better

at it. Syndicates have received

capital loadings as a result of their

continued inability to forecast their

results. We have put a lot more

attention on this in the last year than

we have ever done before.”

To find out what else Prettejohn

had to say about the current state of

Lloyd’s pick up a copy of the

September issue of Reactions at our

booth in the Sporting d’Hiver

the low point of the global

insurance market and Lloyd’s

results reflect those conditions.”

But Moody’s states that in spite of

fewer catastrophes occurring in

2000 than in a normal year, rates

were so low that Lloyd’s loss

experience will still be very poor.

Fitch points out that Lloyd’s

1998 loss would have been greater if

syndicates had not been able to

release excess reserves fro

m prior

years. It believes that syndicates will

not be able to do this in the 1999

and 2000 underwriting years.

The analysts’ figures show that

Lloyd’s is still

a long way off

predicting accurately its results.

Fitch points out that Lloyd’s was

forecasting a loss for 1999 of £830m

twelve months ago. It states that if

results deteriorate as much in 2000

as they did in 1999, the market Sunday September 9 2001 Reactions Rendez-Vous Reporter

1


Rendez-Vous Reporter

Day 1

Sunday

September 9 2001

MARKET LOSSES TO BREAK £1BN BARRIER AGAIN

Doubts cast on Lloyd’s loss forecast

SPONSORED BY

Sun

day

pubLiSherS


published by Reactions and will be

available at 8am daily from

hotel lobbies.

Editorial team

Michael Loney, richard Crump,

Karen eeuwens, Garry booth

Production Siobhan brownlow

Marketing executive

Sanah Faridi

Head of sales

Goran pandzic

Senior sales executives

Sumehr Sondhi

Associate publisher – US, Bermuda and

Latin America david Sam

uel

Publishing director Stewart brown

sabrown@eurom

oneyplc.com

Mobile: +44 7780 998440

Divisional director roger davies

reactions publishing Group Ltd,

nestor house, playhouse yard,

London eC4v 5eX, uK

tel: +44 (0)20 7779 8184

Fax: +44 (0)20 7779 8200

Directors

pM Fallon (chairman and editor-in-

chief); the viscount rothermere (joint

president); Sir patrick Sergeant (joint

president); pr ensor (managing director);

d Alfano; JC botts; SM brady; Cr brown;

MJ Carroll; dC Cohen; ChC Fordham;

J Gonzalez; Cr Jones; rt Lamont; G

Mueller; nF osborn; CJFS Sinclair; Jp

williams

©eurom

oney institutional investor pLC.

London 2008.

Although euromoney institutional

investor pLC has made every effort to

ensure the accuracy of this publication,

neither it nor any contributor can accept

any legal responsibility whatsoever for

consequences that may arise from

errors

or omissions or any opinions or advice

given. this publication is not a substitute

for professional advice on a specific

transaction.


published daily on our website:


20 Sunday Septem

ber 7 2008

Reactions R

endez-Vous R

eporter

ww

w.reactionsnet.com

/digital

Your eyes are not deceiving

you. Yes, today is the

traditional Sunday start of

the Rendez-Vous. B

ut those

finely sculpted, lycra encased

muscles you see before you do

not belong to a new species of

super reinsurer. Those people

are athletes or, to be more

precise, they are triathletes and they are competing in the

Monaco Ironm

an 70.�.

Over �,000 iron m

en and

wom

en this morning w

ill

complete a test of endurance

that comprises a �.9km

open

water sw

im, follow

ed by a

90km bike ride and then a half

marathon run of 2�.�km

: a

total distance of 70.� miles. T

he event is important in the

world of triathlons because it

will provide 50 qualifiers for

the 2008 Ironman 70.� W

orld

Cham

pionship in Clearw

ater,

Florida and �0 for the 2009

Ironman W

orld Cham

pionship

in Kona, H

awaii.

The sw

im section of the race

starts on Monaco’s L

arvotto

beaches while the gruelling

bike leg takes contestants

into the mountains behind

Monaco. T

he running course

traces the Formula � G

rand

Prix track for four and a half

laps with the finish line on the

Casino square in front of the

Hotel de Paris.

Nearly all of the participants

are “age group” athletes – ages

range from �9 to 7� years w

ith

an average of �8 years – though

there are 40 professionals

in today’s race. Two w

orld

champion Ironm

en will be

on the starting line: Chris

McC

ormack (H

awaii in 2007)

and Thom

as Hellriegel (H

awaii

in �997). At their side, M

arcel

Zam

ora Perez is out to defend

his double-title acquired in

2006 and 2007 at the Monaco

Ironman 70.�.

MonACo ironMAn 70.3

Racing at the Rendez-vous

Is this the bottom of the m

arket?

© CATHERINE FIANT

JuSt tri wAtChinG

the start area, the transition area and the bike park are situated in the

Larvotto beach area, between the Grimaldi Forum

and the Meridien hotel.

SwiM 07:00-08:10

the swim start will be on the plage du Larvotto at 07:00. Speakers and dJs will

be on hand to give a party atmosphere and race com

mentary.

biKe 07:25-13:00

the cycling stage takes in the climbs and cols of the Alpes Maritim

es. the

municipalities crossed by the race will resem

ble those planned for the

2009 tour de France. you can easily gain access at the Mont des Mules, the

Col de Guerre and the Col du Caillasson. All of these places have the most

spectacular panoramas and fast action.

run 10:00-15:30

the run will take competitors on four and a half 4.5km

loops through Monaco,

including the famous Form

ula 1 tunnel by the old congress centre.

FiniSh Line 11:10-15:30

At the Avenue de Monte-Carlo (near the place du Casino) – this area will be

mobbed by athletes, supporters and the m

edia with the music pum

ping loud.

Sunday

Sep 12 2010



SeptembeR 12-15 2010

monte CaRlo, monaCo



LEAD SPONSORS: SPONSORS:

INSIDE thIS

ISSuE…

taking no

chances ...........3

Sullivan resurfaces at

Willis’ new unit .5

Reinsurers’

funds up 12%

in first half .......7

NZ quake loss

insured $2bn-

$4.5bn .............9

Gen Re will

walk the walk,

says CEO ........11

Reactions Global

Awards 2010

nominees .......12

Debating the

future for

broking ..........15

IAIS calls

for macro-

surveillance ...19

Share buybacks

up sharply in

first half .........20

RiskBitz .........21

Insurers demand

action ............23

INDuStRY OutLOOK

Raters downbeat on reinsurers

Soft pricing, overcapacity, slack

demand and low investment yields

will combine to challenge reinsurers

in the coming year, rating agency

analysts agree.

Moody’s credit outlook

on the reinsurance industry

remains negative. It believes that

fundamentals for the industry are

more likely to weaken further than

improve in the next 12 to 18 months.

In 2009 reinsurers’ book value

increased as a result of the recovery

in the capital markets and low

catastrophe losses, and balance

sheets have remained strong despite

much higher losses this year related

to events such as the Chilean

earthquake and the Deepwater

Horizon disaster, Moody’s says in its

global reinsurance outlook report.

During 2009 the aggregate book

value of the top 40 global reinsurers

grew by 28% over year end 2008

levels, to around $365bn at the end

of 2009. In addition, equity positions

for these firms have continued to

increase, ending the second quarter

of 2010 at around $385bn.

At the same time, the demand side

remains weak, reflecting slow global

growth rates. US non-life insurance

premiums fell during 2009 for a

second straight year, down 3% year

over year and about 5% since the

peak in 2007.

Of the non-life insurers Moody’s

surveyed, most do not plan to

increase their reinsurance budgets

during 2011. “With premium

volumes drifting lower and equity

positions holding steady, we believe

the industry has too much capacity,

which is likely to manifest in increased

price competition,” said James Eck,

senior credit officer at Moody’s.

At the end of the second quarter

of 2010, shareholders’ funds at the

top 40 reinsurers were 6% higher

than levels at the end of 2009,

and were up 36% since the end of

2008. Only the return of capital

to shareholders through share

buybacks and dividends in recent

months has slowed the upward

progression of capacity.

Moody’s believes that conditions

are favourable for additional

mergers and acquisition activity.

“While share buybacks have helped

keep the level of overcapacity in

check, solving the overcapacity issue

in this environment may require

capital to leave the sector through

consolidation,” Eck said.

Analysts at Fitch retained a stable

outlook on the reinsurance market

on the basis that “the challenges

facing reinsurers are unlikely to

impede the stability of earnings

and strong levels of capitalisation

for the majority of reinsurers

over the next 12 to 24 months”.

But Fitch also warns that the

intensification of competitive

conditions mean that the prospects

for continued strong earnings

have diminished for many global

reinsurers. Like Moody’s, it

points to mounting pressures

from the softening premium rate

environment, reduced demand

for reinsurance capacity among

cedants, and continuing challenges

in generating sustainable levels

of investment income in the low

interest-rate environment.

Fitch says reinsurers are also

contending with a variety of complex

regulatory issues – including the

introduction of Solvency II – which

require adaptation to a changed

competitive landscape.

The ability of reinsurers to

successfully execute on cycle

management strategies will vary,

and Fitch believes that the next 12 to

24 months will prove to be a crucial

period of differentiation between

reinsurance companies.

Sunny monte Carlo – but clouds form on reinsurers’ horizon

Contents

Continued on page 3


RENDEZ-VOUS REPORTER: SUNDAY SEPTEMBER 13 2015

www.reactionsnet.com | 1

Co-sponsor

Pioneer

plans Singapore

expansion ............3

Guy Carpenter

briefing ...............5

Lloyd’s launches

apocalypse index

for megacities......7

Storm surge risk on

US East coast .......8

Montross questions

“uncorrelated” cat

bond claims .......10

O’Kane: M&A

deals won’t always

deliver ...............12

The risks of M&A –

PwC ..................15

Powerful El Niño

to get stronger ..19

Cat XL sees

sharpest drops ..20

Reinsurers taking

big risks to chase

new business .....22

Swiss Re’s CEO speaks as

a passionate advocate for

the role of reinsurance

in bringing “objectivity and

neutrality” to this year’s crucial

climate risk talks. Michel Liès told

Reactions the industry is unique

in its ability to put a credible

price on the costs of political

inaction in combating the risk of

climate change.

The United Nations’ so-called

“COP21” talks will take place in

Paris in December, including the

chance for re/insurance input.

Ongoing debate includes recent

bilateral US-China statements,

and around the broader economic

emergence of catastrophe-

prone Asian countries, all of

which provides an opportunity

for the industry to play a

conspicuous part.

“The key contribution we can

bring is to credibly put a price tag

on the decisions which are taken or

not taken,” said Liès. “We enjoy an

image of objectivity and neutrality,

so when we speak about the

challenges of climate change, and

when we speak about political

action which is either taken or not

taken, we are credible – and that’s

extremely valuable. For us as the

ultimate risk taker for the risks of

nature, it’s obvious that the world

has to take this risk seriously.

Climate change could cost the

world economy something like

20% of global GDP by the end of

this century.”Liès and Swiss Re are

participating in several

international committees, including

the New Climate Economy project

being launched by the Global

Commission on the Economy and

Climate group of 14 countries

chaired by the former President of

Mexico Felipe Calderón.

“Globally, we are working

quite intensively with the World

Economic Forum (WEF). The WEF

also has some satellite meetings

in other places, and it is one of

the few very powerful forums in

which the private sector and those

politically responsible can meet

and discuss making concrete steps,”

he said. “At the end of September,

I will participate in a UN meeting

with the private sector. Last year

we committed to address certain

numbers of government and

propose to them several solutions

for their catastrophe exposures.”

A number of governments,

such as Mexico’s, some Pacific

island states (plus some at-risk

states or provinces in the US and

China) have already turned to the

How well can you assess

your future

liability risks?

MICHEL LIÈS

CEO, Swiss Re

Bringing objectivity to climate debate

Inside thisissue…

Brandon

Schweitzer

on how

Sedgwick Re

will boost Guy

Carpenter.......2

PartnerRe to

acquire

Winterthur Re

business..........2

1998 Global

Reinsurance

Analysis .........4

Hannover Re

acquires

Clarendon ......6

Insurer’s EMU

alert...............6

Five bow to

Holocaust

claims ............6

China’s PICC

disbands .........7

Reporter

editorial team:

covering the

world’s premier

reinsurance

meeting..........7

Sports news ....8

It gives me great pleasure to

welcome delegates to Monte-Carlo

for the 42nd Rendez-Vous de

Septembre. This meeting, which

attracts senior insurance and

reinsurance figures from over 80

national markets, provides us with

a unique opportunity to make new

contacts and renew old

acquaintances.

Delegates should note that this

year’s programme includes a new

type of conference session. For the

first time a number of young

professionals (under-35s),

representing different world

markets, will present their views on

the future of our industry.

There is plenty to talk about.

Since we last met in Monaco,

restructuring has continued in the

global primary insurance and

reinsurance markets. Across

Europe and in North America,

mergers and acquisitions have

created bigger corporations with

global reach.

In the East, economic recession

combined with agreement in the

recent World Trade Organization

talks, is leading to liberalisation and

deregulation. Once-closed markets

such as Japan are beginning to open

up now to foreign insurers,

reinsurers and brokers.

The business itself is changing

too. As well as “consolidation”, we

now hear the term “convergence”

more frequently. Increasingly, the

paths of investment banks cross

with those of insurers and

reinsurers. Risk securitisation,

catastrophe bonds and

bancassurance, for example, bring

with them new challenges for

established players and new

entrants alike.

Despite all these changes,

reinsurance remains “a people

business”, however. That’s why

the appeal of the Rendez-Vous de

Septembre remains undiminished.

I hope you enjoy your days at the

Rendez-Vous and that your

discussions prove fruitful. The

continuing development of the

global reinsurance industry, one

of the most important cross-

border financial services sectors,

is in your hands.

Antoine Jeancourt-Galignani,

president of the organising

committee

Antoine Jeancourt Galignani

Sunday 6 September 1998 Reactions Rendez-Vous Reporter 1

Reactionsthe financial magazine for the global insurance market.


Day 1Sunday

September 6 1998

THE 1998 RENDEZ-VOUS DE SEPTEMBRE IN MONTE-CARLO

Welcome to the ’98 Rendez-Vous

Official Programme

Monday 7th Sept

08:45-17:00 Cultural programme for accompanying guests

18:00 Welcome cocktail on the Casino terrace, hosted by the organising committee

Tuesday 8th Sept

08:45-12:00 Cultural programme for accompanying guests

09:30-12:30 Congress Auditorium

Presentation and debate chaired by Jan Holsboer of ING Group. Speakers are young professionals

from the insurance and reinsurance business presenting their views on the future of the business

• “Time Is Money becomes Health Is Money.” Marjol Nikkels-Agema, Sensio Konsult (Netherlands)

• “Global Management of a Reinsurance Portfolio.” Philippe Francois, Axa Re (France)

• “Insurance Industry Opportunities in Asia.” Nicholas A J Smith, Crosby Assets Management (HK)

Jury Members: Kaj Ahlmann, chairman and ceo, Employers Re; Bjorn Wolrath, chairman of

Swedish Insurance Society; Rudolph Kellenberger executive committee member, Swiss Re.

Wednesday 9th Sept

09:30 Congress Auditorium

Presentation by Pierre Florin, president l’Assemblee Pleniere des Societes d’Assurance Dommages

16:00 Congress Auditorium, Room C, Level 3

L’Argus Round Table: “Reinsurance – Present European and World Economic Situation”

Thursday 10th Sept

12:30 Café de Paris, Salon Bellevue

Lunch debate with the Chambre Monegasque de l’Assurance: “Les Grands Travaux a Monaco”

SPONSORED BY




Co-sponsor

Contents

Aon BenfieldVisit thoughtleadership.aonbenfield.com to access the report

Aon BenfieldInsuranceLinked Securities

Brexit: Lloyd’s threat amid looming uncertainty ..........3XL Catlin prepares to grow despite sluggish market ...5New UK Insurance Act implemented .7XL Catlin targets April 1 India start date .............8JLT Re: Uncertainty equals opportunity for risk industry ..10Moody’s responds to Fitch-Best ratings comparisons .....12Asta adds new OverArk MGA ....15Cooper Gay rebrands to “Ed” .17Fitch says AM Best ratings “not like for like” on start-ups 19Cyber risk in uncharted waters – Guy Carp ........20London Market faces uncertain future ................22

AM Best has rebuffed remarks by rival Fitch Ratings, firing off a riposte exclusively to Reactions called “Why you can’t compare apples and pears” from Greg Carter, managing director for analytics at AM Best Europe.“It is a myth that all start-ups receive an AM Best “A-”. In some cases our ratings, often unpublished, are more conservative than those given by other rating agencies,” said Carter, who worked at Fitch until 2010.Carter was responding to Fitch’s talk that an “A-” from AM Best for a start-up reinsurer was nearer a “BBB” from Fitch (see p19 for Fitch and p12 for a Moody’s response). In reply he cited AM Best’s re/insurance “long and established track-record and expertise”.“Rather than applying a cap to a rating without due consideration of an individual organisation’s profile, we believe true analysis of a company’s risk is a more appropriate approach,” said Carter. “We see no analytical justification

that start-up ratings should be capped at “BBB+”. There is no statistical evidence to support such a rating cap or any suggestion that start-ups have a default or impairment record that is consistent with a “BBB+” or below.”Impairments and defaults are different, he stressed. “Most critically, we observe that impairment rates for insurers are much higher than default rates. In considering default statistics, the definition of default and initial

sample set being tested are critical considerations,” he said.“One can’t merely acknowledge there is a difference and then ignore the difference while purporting to provide the full story. Our position is that it is not possible to compare apples and pears, that impairments and defaults are not one and the same, and that the numbers are certainly not comparable,” continued Carter.He also scotched sovereign-based caps. “There have been several instances of sovereign defaults where the insurance market has continued to function. AM Best was the first rating agency to set out the reasons why a hard cap was unsuitable, with another rating agency subsequently adopting that methodology,” said Carter.EU regulator EIOPA has already judged AM Best’s ratings equivalent with its rivals, including Fitch, Carter pointed out, and he expects that the US National Association of Insurance Commissioners will conclude the same. l

GREG CARTERManaging director, AM Best Europe

AM Best hits back at Fitch Ratings

SundaySep 11 2011

REndEz-Vous REpoRtERRendez-vous de septembRe

septembeR 11-14 2011

monte CaRlo, monaCo




LEAD SPONSORS:

SPONSOR:


up, but how much? ..............3

ISS against transAllied

merger .............5Industry “over

reliant” on cat models .......7

hedge fund hires Berger for

start‑up ...........99/11 – the

Rendez‑Vous remembers .....11

tour de Monaco

triumph for Lloyd’s CC ......13

Cat losses soar

to $70bn in first half .........16

Ban on acceptance fees

to hit motor ....19Reinsurers strive

to shore up capital ...........21

RISKbitz .........23London: surprisingly

big .................24

RAtINGSRaters optimistic despite cats

Have you examined every angle?

Have you SPoKen To aSPen?

aspen-re.com

AM Best, Fitch, Standard & Poor’s

(S&P) and Moody’s have all issued

views on the future of reinsurance

ahead of the Monte Carlo Rendez-

Vous, with the latter upgrading its

outlook to stable from negative.

The rating agencies believe that

reinsurers will benefit from price

increases at the upcoming January 1

2012 reinsurance renewals.

“Recent catastrophe losses loom

large in our decision to revise our

outlook on the reinsurance sector

to stable from negative, given that

they have provided momentum for

reinsurance rates to harden,” said

Moody’s.The rating agency believes

that a combination of good risk

management and discipline has

helped the reinsurance market

handle losses. It said this is likely

to continue over the next 12 to 18

months.“However, over the longer term,

it remains uncertain whether this

expected plateau is a temporary

halt to further pricing weakness

or whether it will be followed by

sustained market improvements,”

said Moody’s. It suggested that wholesale price

increases will not be seen in the

January renewals period. “Although

future pricing will key off the Atlantic

hurricane season, we envisage

broadly stable to strengthening prices

at the forthcoming 1/1 renewals,” said

Moody’s.AM Best believes causes for

optimism are beginning to appear

for the reinsurance market.

“Hopeful signs are emerging

for the global reinsurance industry

after years of a soft market, weak

investment returns, lukewarm

investor interest and sluggish

consolidation activity,” said AM Best.

Citing a dampening of capacity,

diminishing capital positions and

the unlikelihood of repeating the

benefit to earnings gleaned from

2010’s reserve releases, AM Best said

that the market may be beginning to

stir, ending what it called “a state of

virtual paralysis”.

The rating agency suggests

that the variety of pressures on

reinsurers will lead to hardening

in 2012, noting that firms are

managing depleted capital reserves

“very cautiously in anticipation of

additional cat losses and the hope

for a more dramatic improvement in

property cat pricing at the January

2012 renewal”.Meanwhile, S&P maintained

its outlook as stable, but the firm

warned that it would reassess its

position should the industry receive

another shock of 5% to 10% capital.

S&P noted that price rises have been

uneven so far within the industry, and

have affected only some regions and

business lines. “The increases we have seen have

not been enough to turn the whole

market, and in some cases have been

inadequate for the risks assumed,”

said S&P. “In our opinion, returns

on some longer-tailed lines of

business remain uneconomic, and

an upward shock to inflation or

interest rates could put companies’

balance sheets at risk.”





Co-sponsor

Contents



Grappling with Irma climate change link ..........3Hiscox Re reaps rewards ...............5Signs of a reinsurance market on the move ........7Reinsurance beyond the comfort zone .......8BSX confident as lead in ILS ..........10Size (still) isn’t everything .........13Congress seeks to open private flood market ......14E&S market meets in San Diego ......17Tough conditions, but not the toughest............18Fear stalks cat market as losses mount ...............19PCS aims to breathe life into cyber ILS ...........21ILS continues record run .........22

“What damage did Hurricane Irma wreak overnight, and what is the industry’s exposure?” There is little doubt these are the questions that will dominate discussions on the opening day of the 2017 Monte Carlo Rendez-Vous de Septembre.Just before going to press last night, Hurricane Irma was a Category 3 hurricane with maximum sustained winds of 125 mph. It was sited some 175 miles southeast of Florida’s Key West.According to the National Hurricane Center (NHC), Irma was expected to re-strengthen as it made its way towards Florida after leaving Cuba in its wake, hitting the Sunshine State with winds of up to 140 mph.AIR Worldwide predicts combined insured losses arising from Hurricane Irma in the US and selected Caribbean islands will be between $20bn and $65bn. Losses emanating from the US alone are expected to be in the range of $15bn and $50bn.This US loss estimate includes

wind and storm surge damage to onshore residential, commercial, and industrial properties and their contents, automobiles, and time element coverage.AIR’s data suggests 80% of the insured value within Florida in coastal counties. Despite the threat posed by hurricanes being well known, insured exposures in the region have continued to rise. However, since Hurricane Andrew struck in 1992, Florida’s building codes are now the strictest in the country for hurricane damage resistance.

In the selected Caribbean islands, AIR Worldwide believes insured

losses from Irma’s wind and rain-induced flooding will range between $5bn and $15bn.AIR’s Caribbean loss estimates include wind and precipitation-induced flooding damage to onshore residential, commercial, and industrial properties and their contents, automobiles, and time element coverage.These estimates, the catastrophe modeller explained, are based on the Irma forecast advisory issued by the National Hurricane Center on Saturday, September 9 at 5am Eastern Time.

The ninth named storm of the 2017 Atlantic hurricane season, Irma is the strongest hurricane ever recorded in the Atlantic basin outside of the Caribbean and the Gulf of Mexico. The storm formed on August 30 close to the Cape Verde islands. Since then the storm has tracked westwards and caused catastrophic damage in Antigua and Barbuda, St Kitts and Nevis, Anguilla, St Martin, St Barts, and the British and US Virgin Islands. l

Hurricane Irma: the industry awaits

SundaySeptember 8 2013


Rendez-vous de septembReseptembeR 8-11 2013monte CaRlo, monaCo



LEAD SPONSOR:SPONSOR:

InsIde thIs Issue…

Guy Carpenter: reinsurance in a new age ........3Pension fund capital tests old bonds .........4Cat capacity pushing into casualty ...........4

Reactions gets social ...............5Reinsurance capital hits $510bn ............7Low yield assets spell trouble .....7Monte Carlo after the flood .........10Rationalisation of buying continues .......11top 40 global reinsurance groups ...........12RIsKbitz .........15Broker sidecars: AM Best issues warning .........16

LeAdeRs WARn OVeR ILs MARKetnew capital piles on the pressureThe threat posed by new capital is a big preoccupation for reinsurance bosses meeting in Monte Carlo for the 2013 Rendez-Vous. It’s a challenging time for the reinsurance industry and its clients, according to Gen Re CEO Tad Montross. “The reinsurance business is receiving a lot of attention today. Bankers looking to replace lost fee income from mortgage backed securities are pushing insurance-linked securities,” he told the Rendez-Vous Reporter in the run up to this year’s meeting. “Pension funds searching for yield are investing too, so the supply is up. In addition, many companies have increased their retentions over the past few years so demand is down or at best flat.”

Montross believes the influence of insurance-linked securities on reinsurance market conditions could be short-lived. “In the short run the ILS phenomenon will get a lot of attention, but it’s been around for 20 years. It is not new. It’s likely to subside when returns for credit risk go back to more normal levels, and the inability to model extreme weather events accurately is better understood,” he says.Other industry leaders have bigger reservations. Speaking at the Lloyd’s City dinner last week, Lloyd’s chairman John Nelson also noted how the low interest rate environment and the desire to diversify investment portfolios has attracted capital into the insurance industry on a scale not seen before. “We all vividly remember the systemic problems which arose in

the banking industry – simply put, where capital became detached from the underlying transaction of risk. The insurance industry must avoid these traps – some of the structures being used could undermine some of the qualities of the insurance model, which provides a secure and reliable risk transfer market for specialist risk – and indeed the reliable payment of claims. “These structures will most certainly not be in the long-term interests of the customers, unless we can make sure that reliable levels of service and performance supervision are at the heart of our successful industry,” he warned. Gen Re’s Montross says that the influx of new capital is adding to the many challenges facing the global insurance markets: “We are witnessing an increase in extreme weather events around the world. Interest rates remain at historic lows and there is significant regulatory uncertainty.”Gen Re’s renewal strategy remains

unchanged, against this volatile backdrop, however, he told the Reporter: “We offer a direct client relationship, a consistent approach and a partnership in addressing underwriting and claims issues.”Montross casts doubt on the need for insurers deemed to be systemically important to have special oversight, as outlined in the recent IAIS/FSB proposals. “The insurance business is fundamentally different from the banking business because it isn’t susceptible to a ‘run on the bank’. I think it is fair to say that multiple layers of regulation will not be efficient and potentially less effective. Personally I don’t believe ‘too big to fail’ is good public policy,” he says.“I understand reinsurers will be evaluated next year in terms of systemic significance, but I think the guiding principle should be consistency. If you look at past financial crises, tail risk, leverage and liquidity have been the culprits so that’s where the focus should be,” Montross adds.

He thinks climate change is another urgent issue that the industry must engage with: “I think the debate over climate and its implications for the economy is accelerating in a healthy way. Clearly the industry will continue to play an important role in assessing and managing catastrophe risk. The societal issues of land use and building codes are critical if we are going to be prepared for the loss implications of rising sea levels and increased storm energy caused by a warmer, wetter environment.”

tad montross

SponSoRed bY

Inside thisissue…ReinsuranceCEOs areconfident ofgood news in theupcomingrenewals.........2

A summary ofthe world’sbiggest newsstories ............8GRX gets $7.5mcash boost fromoil industry ...10AMP’s earningsrecoverfrom GIOnightmare.....10AM Best takesaway OPL’s A+rating...........12

Speculation over the emergingupswing in reinsurance terms andconditions is on everyone’s lips atthis year’s Monte-Carlo Rendez-Vous. A broad consensus says thatreinsurance pricing has bottomedout and is actually increasing insome selective sectors. But theanswer to the big question –whether rates will increase further –will depend on reinsurers’ lossexperience in the run up toJanuary 1 2001 renewals.Scor chairman and chiefexecutive Jacques Blondeau is in nodoubt that a recovery is takingplace in the market. “There is somehard evidence of an improvement inmarket conditions. We are alreadyseeing better rates on catastrophecovers, for example,” he says. “Thelarge losses suffered by reinsurerslast year, including the Europeanwindstorms Lothar and Martin, arebehind the hardening.”Blondeau also points to animprovement in commercial lines.“US commercial property businessis showing 15% increases and theEuropean markets are following asimilar trend.”AXA Re’s Patrick Cerceau,senior vice president andmarketing executive groupmanager, agrees. He points to ahardening in retrocessional ratessince the beginning of 1999 andimproving conditions forfacultative business with catexposure. Like Blondeau, Cerceaudetects realism creeping into thepricing of industrial risks. “We’reseeing some improvement in largeproperty/casualty risks, especiallyin the US and in France where new

property rates as a result of thewinter storms in Europe, but thatwill not feed into industrial fire ormotor business,” says WilhelmZeller, chief executive of HannoverRe. Most reinsurers simply havenot lost enough money for there tobe a general market upswing, heargues.US Re director Brian McGuiresays that at the Rendez-Vous inpast years the buzzword has been“market share”. This year, heexpects the buzzwords will be“underwriting profit” and “returnon capital investment”. McGuire ismore sanguine about the market’sprospects. He says: “The discussionwill not be about whether rates arefirming up or coverages beingreduced, but how much more it isgoing to cost and what changes incoverage can be anticipated.” Many in the industry believe that

terms are aimed at reducing theinsurer’s liability.”John Engeström, chief executiveat ACE Tempest Re states that themarket has started to turn but saysthat the picture is not yet clear.“Cat rates are up sharply in loss-affected areas in Europe – wherethey are doubling or more – andcountries with earthquake losseslike Greece, Turkey and Taiwan,”he says. “But not much ishappening to earthquake rates inJapan, Australia, New Zealand orthe US. Florida windstorm has runinto a capacity squeeze so rates areup by double-digit figures. Propertyrates in the US are improving,especially in the facultativemarket.”

However, there are parts of themarket where pricing remains verydepressed, in spite of very poorresults, and which are likely to stayso. “We are seeing increases in



Rendez-Vous Reporterday 1

SundaySeptember 3 2000REINSURERS EXPECT RECENT PRICE INCREASES TO CONTINUE IN UPCOMING RENEWALSthe only way is up for rates

SponSoRed bY

90

95

100

105

110

115

120

1999e199819971996199519941993199219911990

World reinsurance industry combined ratio

Source: Swiss Re/FPK estimates


SundaySeptember 9 2012


Rendez-vous de septembReseptembeR 9-12 2012monte CaRlo, monaCo



LEAD SPONSORS:

SPONSOR:


Reinsurance “winners and losers” .............5

hannover Re upgraded by AM Best ...........5Cedants in for some tough talk ..................7Isaac a non-event for reinsurers ........7Flood fast becoming uninsurable .....8

A CFO for all seasons .........10Guy Carp warns on Lloyd’s roadmap ........11Focus on unmodelled perils .............12RISKbitz .........15Alternatives sustainable ....16

INtERVIEW

noonan bulks up cat businessEd Noonan, chairman and CEO of Validus, has sprung the biggest news in the run-up to this year’s Rendez-Vous de Septembre by agreeing a deal to buy Flagstone Re. He told the Rendez-Vous Reporter days before this year’s meeting that he remains confident of tying up his deal to purchase Flagstone Re.The offer, announced August 30, will see Flagstone stockholders receive 0.1935 Validus common shares on top of $2 for each Flagstone share, and represents a total value of $623.2m.Validus has already gained approval from investment funds Lightyear Capital and Trilantic Capital Partners, which own approximately 22.5% of Flagstone’s shares, and Noonan is confident that more will follow.“Two board members that have significant equity stakes in the company have already pledged their shares to vote for the Validus deal,” Noonan told the Rendez-Vous Reporter. “Our sense is that other significant shareholders will be very receptive to the Validus deal as well.”Flagstone embarked on a strategic reorganisation over the past year, putting catastrophe business at the heart of its plans, and recently selling off its Lloyd’s operation to Dutch insurer ANV. Noonan says that the Validus bid offers shareholders the opportunity to opt into such an alignment.“They’ve said they’re going to reorganise around cat, and giving their shareholders the opportunity to trade in for Validus stock is the ultimate way of doing that,” he says.

The deal has moved rapidly since Noonan’s firm was approached back in July, but this was not the first time he had been offered Flagstone. “They had some people approach earlier in the year...and our view at that point in time was that it couldn’t turn into an auction and that’s not a place that we do well so we took a pass,” he says.Noonan says that he’s not aware of any of the other parties interested in Flagstone, describing rumours as a “national pastime” in Bermuda. But he says that by the time the deal came around again, most parties had moved on, allowing Validus to move in.Noonan says he was highly attracted to the deal by the scale it would give to Validus. He estimates that, upon completion, his firm will become one of, if not, the largest catastrophe reinsurers in Bermuda. “You would be hard pressed to find from a strategic standpoint, a more comfortable deal,” Noonan says.What’s more, the shared business

lines meant that due diligence could rapidly progress on a deal that was only in its most nascent stages two months ago.“They do the same business we do and so we were able to do our diligence quite quickly and reach what I think is a great agreement for the Flagstone shareholders and a great deal for the Validus shareholders,” Noonan says.Describing the due diligence process as friendly and open, the Validus boss is highly complementary of the team led by David Brown at Flagstone.“A year or so ago, they said they wanted to reposition the company around their core catastrophe business and they really have significantly accomplished that,” he adds, conceding nonetheless that Flagstone faced an uphill battle. “There’s only so far they could get, given they were a lower rated company with a negative watch and from a size standpoint...they were one of the smaller reinsurers.” Brown is set to leave Flagstone as soon as the deal is completed, and the future of the remaining leadership firm at the reinsurer has yet to be decided, an issue that Noonan says he is keen to resolve rapidly.“Just at a human level, it’s not fair to leave people uncertain, so we’ll make all those decisions very quickly and then move forward,” the Validus boss says.

Equity analysts were receptive to the deal. Analysts at Goldman Sachs noted Validus’ improved position in the property-catastrophe market.

ed noonan





Co-sponsor

Contents



Brexit: Lloyd’s threat amid looming uncertainty ..........3XL Catlin prepares to grow despite sluggish market ...5New UK Insurance Act implemented .7XL Catlin targets April 1 India start date .............8JLT Re: Uncertainty equals opportunity for risk industry ..10Moody’s responds to Fitch-Best ratings comparisons .....12Asta adds new OverArk MGA ....15Cooper Gay rebrands to “Ed” .17Fitch says AM Best ratings “not like for like” on start-ups 19Cyber risk in uncharted waters – Guy Carp ........20London Market faces uncertain future ................22

AM Best has rebuffed remarks by rival Fitch Ratings, firing off a riposte exclusively to Reactions called “Why you can’t compare apples and pears” from Greg Carter, managing director for analytics at AM Best Europe.“It is a myth that all start-ups receive an AM Best “A-”. In some cases our ratings, often unpublished, are more conservative than those given by other rating agencies,” said Carter, who worked at Fitch until 2010.Carter was responding to Fitch’s talk that an “A-” from AM Best for a start-up reinsurer was nearer a “BBB” from Fitch (see p19 for Fitch and p12 for a Moody’s response). In reply he cited AM Best’s re/insurance “long and established track-record and expertise”.“Rather than applying a cap to a rating without due consideration of an individual organisation’s profile, we believe true analysis of a company’s risk is a more appropriate approach,” said Carter. “We see no analytical justification

that start-up ratings should be capped at “BBB+”. There is no statistical evidence to support such a rating cap or any suggestion that start-ups have a default or impairment record that is consistent with a “BBB+” or below.”Impairments and defaults are different, he stressed. “Most critically, we observe that impairment rates for insurers are much higher than default rates. In considering default statistics, the definition of default and initial

sample set being tested are critical considerations,” he said.“One can’t merely acknowledge there is a difference and then ignore the difference while purporting to provide the full story. Our position is that it is not possible to compare apples and pears, that impairments and defaults are not one and the same, and that the numbers are certainly not comparable,” continued Carter.He also scotched sovereign-based caps. “There have been several instances of sovereign defaults where the insurance market has continued to function. AM Best was the first rating agency to set out the reasons why a hard cap was unsuitable, with another rating agency subsequently adopting that methodology,” said Carter.EU regulator EIOPA has already judged AM Best’s ratings equivalent with its rivals, including Fitch, Carter pointed out, and he expects that the US National Association of Insurance Commissioners will conclude the same. l

GREG CARTERManaging director, AM Best Europe

AM Best hits back at Fitch Ratings

1

Rendezvous Reporter

Sunday 4-9-94

As we yet again have theopportunity to meet ourfriends and business con-tacts in the insurance andreinsurance industry inthese pleasant surround-ings, we will be discussingmany familiar themes.

The security of the rein-surer will be the topic ofthis year’s panel discus-sion, and I have no doubtthat this issue is high up oneverybody’s agenda. I hope to see

many of you in the auditorium on

Tuesday morning to listen to our

thought provoking presentations and

to share in the ensuing discussion.

To demonstrate that the battle to

achieve an equitable and profitable

flow of business between insurers

and reinsurers is never finally won,

topics from last year’s debates will

not have lost their rele-vance for this year. Moretechnical pricing, properreturn to shareholders, therole of intermediaries,trends in natural catastro-phes, continuous expansionof the concept of insuredliability: all these issuesremain highly topical. The organising committee

hopes that all of you attend-ing this year’s Rendez-vous

will have fruitful discussions, sharing

views on the state of the market and

identifying new opportunities for

profitable business while also enjoy-

ing the clement weather and

renowned hospitality of Monte Carlo.

Antoine Jeancourt-Galignani, Assur-

ance Generales de France and presi-

dent of the organising committee of the

Rendez-vous de Septembre.

Welcome to the 38th Rendez-vous

de Septembre in Monte Carlo!

AGENDAMonday18:00 Welcome cocktail on the

Casino terrace open toregistered delegates

Tuesday09:30 Panel discussion “How to

evaluate the security ofreinsurers” chaired by KajAhlmann, Employers Re.Speakers include Robert JMebus of Standard &Poors, Pierre Florin of AxaAssurances, and JohnLombardo of MunichAmerican Re, The MonteCarlo Convention CentreauditoriumWednesday

09:30 Paper by Pierre Florin,president of the AssembléePléniere des Sociétéd’Assurances Dommages

The Monte Carlo ConventionCentre auditorium21:00 Dinner & Entertainment at the

Salle des Etoiles, MonteCarlo Sporting Club. Black tie

INSIDEMarie-Louise Rossi, chiefexecutive of LIRMA talks to the

Reporter about her hopes and

fears for the future .......................2Why everyone is talking about

Pine Top and Pan Atlantic ...........2Reuter Insurance Briefing:Keep on top of market news as it

surfaces .......................................3

This year’s Rendez-vous is the

biggest in five years. A mighty 2200

delegates from 80 countries have

registered – which surely reflects an

upturn in the industry’s fortunes.

The event is important to Monte

Carlo, which plays host to 217 con-

ferences each year. The Rendez-

vous de Septembre is the biggest,

closely followed by the Lycra Ren-

dez-vous in January, a meeting of

anyone who’s anyone in lycra (you

know, swimwear, cycling shorts,

that sort of thing). Imagina, the TV

fest, attracts a large number of

square eyes in February.The principality has four million

visitors each year:

Record breaker

Rendezvous ReporterMONTE CARLO RENDEZ-VOUS 1994

DAY ONE

Sunday 4th September 1994

Come and see us at the SalonNaïade “A” in Hôtel Loews


A twelve year old El Nino, the

oceanographic phenomenon where-

by a rise in sea/surface temperatures

causes storms on either side of the

Pacific, could be with us into the

next millennium, according to new

research. Dr Greg Jacobs of the Naval

Research Lab in Mississippi, claims

that the original change in water tem-

perature that happened in 1982 is the

cause of the flooding which hit the

Deep South last year. Moreover, his

computer modelling indicates that

the 1982 weather system will con-

tinue to affect the North Pacific for

another ten years to come.The 1982 El Nino was the

strongest in 100 years.

El Nino upon us


Inside thisissue…

Why Names willfight reform atLloyd’s...........2How new terrormodels willchange themarket ...........4

Why riskmanagers arerunning out ofpatience .........6

Munich Re maystruggle tomaintainperformance .11

Why analystsare disappointedwith Swiss Re’sresults ..........12Zurich to raise$5bn after large half-yearloss ..............14

The St Paulalters IPO ....16

Scor’s announcement that it is inexclusive talks with Gerling toacquire some of the troubledGerman insurer’s reinsuranceoperations has been met with amixed response from analysts. Theywarn that, although the acquisitioncould benefit Scor, it will alsoexpose the company to manyuncertainties.The French reinsurer made the

announcement along with its half-year results. It is considering buyingall of Gerling’s life reinsuranceoperations and a portion of itsthird-party non-life reinsurancebusiness. “The talks are inadvanced stages,” says ChristophGroffy, spokesman for Gerling.

Analysts believe now is a goodtime to make acquisitions becauseprices are low. The deal would giveScor a foothold in several newmarkets. But they also say it wouldtake time for Scor to benefit fromthe acquisition and warn of thelong-term uncertainties.“The potential for improving

Scor’s market position through thisacquisition is significant,” saysChristian Dinesen, insuranceanalyst at rating agency Standard &Poor’s (S&P). “But Scor will befacing quite big challenges if itacquires the reinsurance operationsof Gerling.”S&P put Scor’s rating of single-A

on negative credit watch followingthe announcement and Scor’s half-year results. S&P said in astatement this was because ofdoubts that exist concerning “Scor’sability to properly capitalise anynewly formed group andsuccessfully manage integration

strategic partner to take a majoritystake in the Gerling group. Thisdecision followed the poor 2001results at the company’sreinsurance division, and the

resulting need to inject a seconddose of fresh capital into thecompany.

Gerling’s two main shareholders,Rolf Gerling and DeutscheBank, had to inject €408m ($360m)into Gerling at the end of last year,of which €300m went to thereinsurance operations. Then thecompany’s 2001 results, in whichthe reinsurance division posted aloss of €500m, prompted the needfor a further €300m of new capital.

In August, Gerling placed its USreinsurance subsidiary into run-off.Observers believe this made thereinsurance business moreattractive to potential buyers.

If Scor completes this acquisitionit would be its second bigreinsurance purchase in the past

two years. In July last year itbought Sorema from Frenchmutual insurer Groupama.

risks”. But the statement also saidthat such concerns surround anydeal of this type and it does notexpect a downgrade to follow.

Thomas Fossard, equity analystat BNP Paribas Equities, agreesthat the acquisition would improveScor’s market position. But headds: “In the current market thereis a little more risk and uncertainty.Scor will be buying a company thatwill not, at first, be contributing toits net income.”Dinesen adds that Scor must take

its opportunities to grow whilemarket conditions are good. “Themarket conditions allow bigcompanies to grow organically,” hesays. “But if you really want togrow, you have to makeacquisitions.”If the acquisition happens,

Gerling will be able to leave thevolatile reinsurance business almostcompletely, allowing the companyto focus on its more profitableprimary insurance business.

Gerling announced in March thisyear that it was looking for a




Sunday

September 8 2002UNCERTAINTIES SURROUND INTEGRATION OF GERLING BUSINESSDoubts over Scor’s Gerling bid

SPONSORED BY

Rolf Gerling

Scor CEO Jacques Blondeau

Inside thisissue…

Hannover Reresults impressanalysts ..........2New Lloyd’sunit targetsliability hole ...5

Benfield postsencouragingresults ............7Bermudianplayers dive intocasualty..........8Insurersresponsible forpower cuts ....13Insuranceleaders’ survey ..........15US trade groupsseek strongervoice ............16Munich Reblasts S&Pdowngrade ...19Fifa to use catbond-type tool ..............20

The increasingly acrimonious warof words between some of thebiggest reinsurers and the industry’srating agencies is likely to dominatethe agenda at the Monte CarloRendez-Vous this year. With two ofthe top players cut down to thesingle-A range by Standard &Poor’s (S&P) in recent weeks,buyers now face uncertainty overthe true financial strength of theindustry’s leading companies.Two years ago, before theSeptember 11 terrorist attacks shookthe industry, buyers negotiatingcoverage at the Rendez-Vous for the2002 renewals had a number oftriple-A-rated reinsurancecompanies to choose from.But the combination of depressedinvestment markets and reservingactions has gradually eroded thetop players’ ratings. Only BerkshireHathaway’s reinsurancesubsidiaries, AmericanInternational Group and certaingovernment-backed entities haveavoided a downgrade.Downgraded reinsurers initiallyaccepted the ratings actionsimposed on them withoutcomment. After a flurry of ratingsactions in the first half of this year,however, reinsurers are beginningto hit back.In the past two weeks, S&P hasdowngraded two of the world’sbiggest reinsurers to the single-Arange. Munich Re and EmployersReinsurance Corporation (ERC)are both now rated A+ by the ratingagency. Both companies havevigorously disputed the validity oftheir downgrades. Moody’s, AMBest and Fitch have also

and ERC in their criticism of S&Pthrough its widely-read publicationarm Sigma. A recently-releasedSigma report highlighted whatSwiss Re says are inherent flaws inthe rating process. These includethe potential conflicts of interestthat exist because agencies chargefor their ratings and also oftenprovide consultancy services totheir customers. It also questionsthe way the agencies calculate thelevel of capital they force reinsurersto hold to maintain a certain rating.Because it has come at the start ofthe renewals season, the argumentcould cause confusion amongcedants, who are already buyingcapacity more selectively, accordingto market observers. “Therelationship doesn’t matter thatmuch,” says Tor Mellbye, generalmanager for reinsurance at Swedishinsurer Länsförsäkringar. “Thepure financial positions and ratingsof a reinsurer are more importantthese days,” he told Reactionsmagazine.And buyers are also now puttingsecurity over price. “I am not surethat a small decrease in price wouldmake up for a reduction in financialsecurity,” Hans Joachim Thoenes, areinsurer buyer for Gerling, toldReactions. “Security is moreimportant than a 5% discount.”An increasing reliance on ratingagencies could lead to a big shift inthe way reinsurance capacity isdistributed this year. Some of theold relationships may be abandonedand some of the newer Bermudianplayers, many of which now hold adouble-A rating, may stand tobenefit, market observers believe.

downgraded a number ofcompanies recently.Munich Re described S&P’saction as “unjustified” and thereasons given for it “unconvincing”.Separately, ERC claimed that itsdowngrade reflected pastperformance rather than its morerecent results or its potentialprofitability (see p16 and p19 forfurther commentary).S&P said its downgrade of ERCpartly reflected the possibility thatthe reinsurer will suffer further biglosses on certain lines of business.The agency downgraded MunichRe because its non-life operationshave not been as profitable asexpected. It said this will affect thegroup’s ability to replenish capital.But both rating downgrades arealso partly because of the agency’sreevaluation of reinsuranceindustry risk. The agency has anegative outlook on the reinsuranceindustry as a whole. It hasdowngraded more companies in thepast year than it has upgraded oraffirmed.Swiss Re has joined Munich Re




SundaySeptember 7 2003REINSURERS HIT BACK AT RATING AGENCIESRatings war of words escalates

SPONSORED BY

Monte Carlo 2003: rating downgrades dominate discussions

INSIDE THIS

ISSUE…

US cat rates to

fall....................3

US reinsurers

slam wind law

change .............4

Bird flu

pandemic almost

a reality ............4

CEOs see more

mergers on the

way...................7

Cat bonds catch

fire in 2007.......9

The original and

best: the

Rendez-Vous

Reporter through

the ages .........12

Reactions’

Global Award

winners ..........17

Rates on a

precipice as cycle

turns...............18

Industry has

learnt its

lesson.............19

With two category five hurricanes

already on the score sheet – Felix

and Dean – there will be plenty to

talk about at this year’s Monte

Carlo Rendez-vous.

Brian McGuire, director of

reinsurance broker US Re, says that

the main talking point among

reinsurers will be how to grow their

business. “Although high

investment income yields and

favourable underwriting results are

contributing to record operating

profits and similar ROEs as those

generated in 2006, the monumental

challenge in the industry today is

top line growth,” McGuire says.

Top line growth of reinsurance

premium and market share

expansion is the single most

important challenge facing the

industry, McGuire says, as many

large insurance carriers retain a

greater share of their business. The

expansion of the Florida Hurricane

Catastrophe Fund, as a result of the

insurance legislation enacted by

Florida’s lawmakers earlier this

year, is also impacting reinsurers’

business, he says. “As a result of the

lack of top line growth, reinsurance

companies are retaining more of

their own business net in order to

maintain, if not possibly show some

modest growth in net premium,” he

told the Rendez-vous Reporter.

“This is evident when one looks at

the dismantling of several of the

post Katrina sidecars. Without any

significant change in the [premium]

rating environment it’s possible we

could start seeing some merger and

acquisition activity in the weeks and

months ahead.”

balancing income is profitable!”

she says.

Michael Handler, chief executive

of reinsurance broker Guy

Carpenter’s continental European

practice, says that a big event

usually happens around the time of

the Rendez-vous. In 2001 it was

9/11; in 2005 it was Katrina.

“Unless we have a major event, the

discussions in Monte Carlo will be a

continuation of the dialogue held

last year: overcapacity and resulting

pricing levels.

“In my opinion there should be

increased focus on capital

management within risk retention,

growth potential and management

of the relation between growth and

profitability,” Handler says.

François Vilnet, chairman of

APREF (Association of

Reinsurance Professionals in

France) and a member of senior

management at PartnerRe based in

Paris, says he will be mostly

concerned with market noise

relating to the French market.

“We see the main points of

discussion relating to short term

issues such as the price of cat covers

and terrorism cover; the price and

format of covers for bodily injury in

motor business, and; the future

evolution of the [state] nat cat

regime,” he says.

But Vilnet says he would like to

see longer term issues discussed,

such as the impact of climate

change on cat cover structures and

also the impact of European

competition laws on future

reinsurance products, conditions

and placement.

Sharon Gallagher, treaty

reinsurance underwriter at Lloyd’s-

based company Kiln believes

discussions will initially focus on

the number of category five

hurricanes missing heavily insured

targets. That is before talk

inevitably turns to the likely price

reductions on non-loss affected

catastrophe business at 1.1.08.

“Which is more justified in the US

than internationally,” she says.

Gallagher believes Rendez-vous

participants will also be airing their

concerns about the impact of sub-

prime mortgage problems on the

stock market and hence the balance

sheets of both cedants and

reinsurers.

“In my opinion, people should

focus a little more on floods around

the world – Australia, UK, India.

Along with Kyrill and a Japanese

typhoon and quakes, these ‘nibbles’

into reinsurance programmes dilute

the balancing effect of international

income and hence affect people’s

appetite for US business too.

Diversification only works if the



BRINGING YOU LIVE NEWS, VIEWS AND REVIEWS FROM MONTE CARLO SINCE 1994

Sunday

September 9 2007

TALKING POINTS

Felix the cat fuels market noise

SPONSORED BYRENDEZ-VOUS DE SEPTEMBRE

SEPTEMBER 9-12 2007

MONTE CARLO, MONACO





“It is my pleasure to welcome all par-

ticipants to the 1997 meeting of the

Monte Carlo Rendez-Vous,” says Antoine

Jeancourt-Galignani, AGF chairman and

president of the organising committee,

speaking on the eve of the conference.

“This is a very stimulating time for all

members of the insurance community

with so many developments taking place

in the market, in different countries: I

hope this Rendez-Vous will again be a

time for exchanging useful information

and getting to know one another.”

Flux in the reinsurance market has

done nothing to diminish turnout at the

Rendez-Vous. Over 2,300 individuals

from 100 countries are registered for

this, the 41st meeting. Of the total, near-

ly 1300 individuals are representatives

of insurance and reinsurance compa-

nies, over 600 are brokers and nearly

300 are consultants and lawyers.

“Mostly people come to talk to each

other about strategy and to exchange

information,” says Thierry Auger, AGF

general manager and Rendez-Vous

organiser, “not so much to discuss rein-

surance arrangements per se.” It is the

only meeting in the world of reinsur-

ance where virtually all the chief execu-

tives come together, he adds.

There are two important changes to

the arrangements this year, Mr Auger

explains. Extra space for meetings is

provided in an air-conditioned salon

upstairs at the Sporting d’Hiver, which

is next to the Café de Paris. A bar is

available in the salon.

In addition, a “ladies programme”

has been arranged for spouses. On Mon-

day morning a “village de Provence”

tour takes place and on Tuesday there is

a visit to the Picasso museum in Antibes.

Visitors may sign up for the extra-cur-

ricular activities at the registration desk.

rendez-vousreporter

inside…• Details of Guy Carpenter’s new Global Reinsurance Analysis revealed

• Global reinsurance market grows 21% in five years, says new survey

• Sport: Italian Grand Prix line-up

S U N D A Y7 september 1997

day 1

Big turnout forecast for

Rendez-Vous ’97

In brief

•A new multi-line reinsurer, Latin

American Re, is to be formed by

Bermuda-based XL Insurance and

Connecticut-based Risk Capital Re.

Capitalised with $100m ($75m from

XL and $25m from RCRe) LA Re will be

located in Bermuda and write multi-

line reinsurance in the Latin American

markets. LA Re will mostly write short-

tail, multi-peril property business but

also some casualty, marine and aviation

risks. It will also develop niches in

workers’ comp, D&O and finite

contracts, according to a spokesman.

Richard Mayer, formerly of Johnson

& Higgins is ceo of the new outfit and

Keith Shroyer comes to LA Re from

American Re to serve as chief

underwriting officer.

•Credit Suisse’s proposed takeover of

Swiss insurer Winterthur has been

approved by shareholders of both

companies. The combined group, worth

Sfr50bn on the stock market, will be

among the world’s ten biggest financial

services groups. The Sfr12.8bn deal will

be made by Credit Suisse, Switzerland’s

biggest bank, launching an exchange

offer for Winterthur’s 9.6m shares. The

acquisition will be completed by the

end of the year.


Inside this

issue…

Two-tier market

is here to stay ..3

Beazley

launches

Quincat

facility......

.....3

Market “in

denial” about

cat capacity ....5

Hiscox readies

first Lloyd’s

sidecar ...........5

Reactions 2006

Rendez-Vous

survey ............

7

Reactions

2006 leaders’

survey ..........11

QBE opens new

aviation

syndicate ......13

Testing times

ahead, says

Fitch ............

13

Reactions

Awards 2006

dinner ..........15

Mid-sized firms

feel the heat ..16

There is enough capacity to go

around in Europe, and there have

not been any large European

catastrophe losses, but there is a

potential that catastrophe rates

could increase. Grahame Chilton,

chief executive of reinsurance

broker Benfield, thinks the big

question at this year’s Rendez-Vous

will be whether European reinsurers

will try to push up catastrophe

rates. A lot will depend on the

actions of the two market leaders –

Swiss Re and Munich Re.

“It’s going to be interesting.” says

Chilton. “We’ve already started to

see UK prices move up without

losses. What’s going to happen in

continental Europe? I will be

listening with great interest to any

changes in cat loading coming out

from the people that influence

continental pricing, which is largely

Swiss Re and Munich Re. The early

indications and reactions from

them will be the talk of the market.”

There is an indication that prices

could increase. “European pricing

is dictated by Munich Re and Swiss

Re, and it depends on what their

market share requirements are and

how they feel about it,” says

Chilton. “They did give warnings

last year that they needed to look at

their loadings for property-

catastrophe. They certainly didn’t

do that at January 1 this year.”

But he adds that it is difficult to

tell what will happen before the

discussions at the Rendez-Vous

have begun.

Generally speaking, Chilton

believes a lot of the talk will be

centred on what will happen in

those areas and lines of business

when they’re buying in peak

catastrophe areas, there is an

increased catastrophe loading

coming from big reinsurers.”

There has been a big surge in the

issuance of catastrophe bonds and

the formation of sidecars sin

ce last

year’s hurricane season, as

reinsurers and brokers try to make

up the capacity shortfall for US

wind-exposed business.

But there is still enough

traditional capacity in Europe to go

around, and there is unlikely to be

as much interest in transferring

European catastrophe risks to the

capital markets, says Chilton.

“The only time we will see the

capital markets come in is if they

are able to supply capacity

unavailable in the reinsurance

market or supply a price cheaper

than the reinsurance market,” he

says. “I can’t see either of those two

things happening.”

Chilton expects there to be a lot

of talk about capital markets

solutions at the Monte Carlo

Rendez-Vous this year, but

comparatively little action. And

those that are discussing it have

little practical experience of using

such methods, he believes.

“There will be talk about sidecars

and all the usual conversations, but

this will be more from people who

aren’t doing it rather than people

who are,” he says.

least affected by last year’s

hurricanes. There is already

evidence that prices in non-

catastrophe-hit areas are going up

in the US.

“We saw the West Coast prices

going up by between 10% and

15%,” he says. “Even in the

Midwest where they have never had

a loss before, not even twister

losses, companies are paying

increases of 5%-plus. North-eastern

wind-exposed areas with no loss

experience have seen rises of

between 25% and 30%.”

Although there is a potential for

price increases in non-catastrophe-

hit areas, and cedants fought to

prevent this in last year’s pre-

renewals discussions, Chilton does

not believe there will be such a

mismatch between reinsurers’ and

buyers’ pricing expectations as

there was last year.

“That’s going to be less of a topic

than it was last year,” he says. “I

think customers are expecting thatSunday September 10 2006 Reactions Rendez-V

ous Reporter1



Day 1

Sunday

September 10 2006

EUROPEAN FIRMS DO NOT NEED TO TAP THE CAPITAL MARKETS

Cat rates could rise in EuropeSPONSORED BY

Grahame Chilton

“We’ve already started to see UK

prices move up without losses.

What’s going to happen in

continental Europe?”



RENDEZ-VOUS REPORTER

DAY 1: SUNDAY SEPTEMBER 9 2018

Co-sponsor

ContentsMunich Re

sees greater underwriting

discipline .............3

Neal confirmed as

Lloyd’s new CEO..4

Lloyd’s needs a

survival plan ........7

Taking a byte of the

insurtech pie .......7

Last year not stellar .................8

ILS: the golden

ticket? .................8

Fitch raises outlook

to “normal” ........10

Hiscox Re pushing

pioneering spirit .13

Bridging the capital

efficiency gap ....15

Insurers face crypto

conundrum .......19

The view from the

top ....................20

Top five reinsurers

2017..................22

EC green proposals

welcomed .........25

Regulation is key

for Bermuda ......27

Reactions editorial

board ................28

The non-life insurance industry in

major western markets and Japan

need to improve their underwriting

margin by between five to nine

percentage points if they are to

deliver a desired return on equity

(ROE) of at least 10%, a new report

from Swiss Re has shown.

According to Swiss Re, the non-

life insurance industry posted an

ROE of 6% in 2017, down from 7%

in the prior year and lower than

the average of around 9% achieved

between 2013 and 2015.

As an industry, non-life insurance

is in the midst of a weak phase

of the profitability cycle, with

Swiss Re’s study citing the soft

underwriting conditions, low

investment returns and the high

level of capital market funds

operating in the sector as

reasons for its current state.

The reinsurer, in its

latest Sigma report entitled

Profitability in non-life

insurance: mind the

gap, notes that

2017’s catastrophe

losses set the stage for a modest

industry-wide price correction. But

it remains to be seen how strong

and sustained the upwards shift

in pricing actually is, especially as

the rises have not been as great as

many had anticipated.

Regardless, Swiss Re said

that premium rates “need to

increase substantially to restore

profitability”.While there has been that

slight increase in pricing, “more

work needs to be done if current

shortfalls in profitability are to be

redressed”, Swiss Re said.

Looking across the industry,

Swiss Re said the macro economic

conditions impacting non-life

insurers are improving

and will to some extent

support the closing of this

profitability gap.

“Under the current

stronger economic

conditions, we expect

interest rates in

mature markets to

continue to rise

moderately, which should support

insurers’ earnings through higher

investment returns,” said Jérôme

Jean Haegeli, Swiss Re’s group chief

economist.But on their own, these

changes to the macro economic

environment are not enough to

have too much of an effect on

carriers’ ability to improve their

profitability.“The trend of declining investment

yields has bottomed but at the same

time, the increase in long-term

interest rates that we foresee is not

substantial,” Haegeli added.

Rates are in a transition phase,

explains Swiss Re, but more

underwriting discipline is required

to improve the industry’s returns.

“Premium rates must rise higher

than claims trends to restore

sustainable profitability,” the

report notes.In the longer term, the report

states that insurers’ investments

in technology will benefit them

in terms of both efficiency and

insurability. l

Underwriting margins must rise

Can we help

turn big data into big

insights?

RVS-25YR-AD-May-2019.indd 1 22/08/2019 15:36






















http://www.page







SUNDAY

Will Casualty claims harden the market?

A “large bleed” in the casualty market changes everything, according to Matt FitzGerald,

managing director at Capsicum Re. Speaking on the eve of the Rendez-Vous de Septembre, he says anticipation of losses in the casualty market would help sustain reinsurance rate increases.

“Re/insurance companies have lost a lot of money in recent years,” he says. “The cat losses of 2017 and 2018 are one thing, but the reserve drawer is pretty bare – and I think people are aware they have likely underpriced the casualty market over the last few years, and the market can see quite a lot of pain coming over the next two or three years.”

It’s always the casualty market, not the property market, that drives market-wide change, he notes: “You get regional pricing volatility when there are large cat losses, but it’s when you start to see the substantial casualty claims deterioration that broad, sustained and material pricing improvements occur.

“Claims inflation has not kept up with whatever little rate movement was going on by any stretch, and the litigious society that we’re in today means that the perceived accepted logic of 2% to 3% claims inflation might well be undercooked as well,” he adds.

Looking ahead to 1 January renewals, FitzGerald predicts that rates will continue to move in an upward direction by a few percent. “People can see how bad the casualty results will be, and this coupled with a very active natural catastrophe period means underwriting leadership has got into the mindset of drawing a line on no rate reductions, which is a solid starting point.

“The momentum in the insurance market feels like a balloon being steadily inflated, but no one’s huffing and puffing into it, so it’s slowly inflating,” he continues. “When there is an increase in underlying insurance premium base, reinsurance buyers are not as hell-bent on achieving the cheapest price because

they’ve got more to spend because there’s more coming through.”

While the reinsurance cycle has not completely disappeared, it is not as pronounced as it was in the past, says FitzGerald: “In previous years there was an ability to be able to move the markets slightly more aggressively, but at the moment it’s not a lot more than just being a bit better than it was last year.

“But the fact that there is a desire or need from the market to increase rates would therefore suggest that the market is moving in an upward direction,” he adds. “There is definitely a tension where the insurance market is pushing back to the broking community and their customers requiring more rate.”

Preventing a truly hard market is the abundance of capital in the reinsurance industry. FitzGerald pointed to the reinsurance and ILS capital reload of 2018 as one of the factors that has dampened down the effects of substantial hurricane losses in 2017.

“There hasn’t been a massive eradication of capital to date, and that’s what will prevent the market moving from this gradual rating increase environment to a hard market,” he explains. “Balance sheets still look solid and none of the rating agencies are saying, ‘We’re going to downgrade people.’ That’s why the market will struggle to get real momentum behind price increases. You add on a solid

and mature ILS market and you’ve got more than adequate amounts of capital for the current demand of insurance.”

In terms of what size and nature of loss would be required to cause a more substantial market correction, FitzGerald says a substantial U.S. earthquake might move the needle: “The recent wildfires, tornadoes, winter freezes, and the floods and hurricanes

have been horrific but they have been modelled. They may have been underpriced, but for the most part they had been considered in the vendor models. That said, a U.S. earthquake has the potential to change the whole market, due to its potential colossal size and the fact that there is so much uncertainty about how it has been calibrated in the models. Just look at

Christchurch – the losses are still developing from there eight years on.”

When asked about consolidation in the market, FitzGerald says he believes an entrepreneurial spirit has returned to the broking sector following several years of heightened M&A activity. “After a very long cycle of domination from a couple of broking firms, a few previous leaders of those businesses are stepping out and starting new brokerage businesses themselves with a big deep

war chest of private equity money. Only time will

tell if they will be successful in the domination of the big two.” l

“I think people are aware they have likely underpriced the casualty market over the last few years, and the market can see quite a lot of pain coming over the next two or three years.” Matt FitzGerald, Capsicum Re



SUNDAY

‘Exciting’ market shift fuelled by ILSWilmington Trust’s Robert Quinn, Business Development Manager in Insurance Collateral Solutions, talks to Reactions about the state of the ILS market.

There are those who would say that the third-party capital brought into the reinsurance sector by ILS has resulted in a market transformation, particularly in the property catastrophe space. Is that too dramatic a description? What are your thoughts on that? I don’t think this is too dramatic. There is an entire industry, the Insurance Linked Securities (ILS) industry that has been created by third-party capital. While we work primarily on the Industry Loss Warrant (ILW) side, we are fully prepared to handle the catastrophe (CAT) bonds as well. But with billions of dollars involved in the ILS space, I think “transformation” is a fair way to describe the situation.

Broadly speaking, what’s your view on the ILS market at the moment? How would you characterise it?The word that comes to mind for me is exciting. It opens up the insurance and reinsurance space to entities that otherwise might never have participated. It gives the opportunity for lines otherwise not considered for

the reinsurance space. And it creates an entire industry of potential ILS trust clients. It is a very exciting time for us as Trustee.

Do you see a fair amount of “trapped” collateral these days? Can you explain what that is and how that occurs? Most catastrophe reinsurance and ILW transactions are one year in term. Many commence on 1 January of the year in question. If the offending hurricane occurs in the following November of the same year, it might takes six months

to assess all of the damage. In this situation it won’t be known until April of the following year if the collateral in question will be needed to pay claims. Normally the collateral would be released on 1 January. But in this situation, the collateral was “trapped” for an extra four months.

I did see a lot of trapped collateral early on at the end of 2018 and early 2019. There is still some, but things seem to be normalising for my clients as time passes.

How would you describe Wilmington Trust’s role as a trustee in the ILS space? I would describe our role as vital. I say this because while the core of our team has been with Wilmington Trust for five years, we have now spent 20 years identifying opportunities for clients to save money via lower fees, earn additional investment income via multiple investment options, and streamlined client and account onboarding. Therefore, we constantly pressure other trustees to better their performance. l

Brit’s Sussex Capital targets growth

The early 2018 launch of Sussex Capital came at a rough time for the industry as a whole, but

Jon Sullivan, Group Deputy Global CUO and active underwriter for Syndicate 2987, is confident in Brit’s latest offering.

Brit CEO Matthew Wilson has been vocal in his desire to grow Sussex into a leading ILS manager, despite its timing upon entering the market.

Following a record $144bn in global insured losses in 2017, the re/insurance industry has been busy recovering from such a devastating blow, and Sussex is no exception. “We started at a challenging time, and something

that is common to all ILS funds is that you need a track record – so we have to put the pipework in place first in order to expand our offering over time,” says Sullivan.

“Sussex is in its second year. In the future we have some plans to expand the offering beyond P&C but at the moment we are in our formative years so we have fairly [standard] offerings going into 2020,” he added.

For now at least, the current hardening market is a boon for Sussex, and the industry in general.

“A hard market is favourable for all reinsurers, whether traditional or ILS,” says Sullivan. “Right now we’re

not seeing a runway hard market, but some pockets are definitely more interesting than others – and we’re happy the market is moving in an upward direction.”

But while the market is having a good year, he notes, not all lines are, such as downstream energy. “And while we had a quiet European windstorm season, we are still in the middle of the Atlantic hurricane season while we are still seeing the deterioration of 2017 and 2018 losses, meaning that some funds have been putting out bad news,” he adds.

Sullivan adds that the ILS space will have a clearer path forward once capital raises begin in autumn. l


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SUNDAY

The trouble with advanced analytics

Advances in analytics are enabling P&C insurers to unlock new frontiers in risk assessment and

mitigation – although challenges do remain in the form of legacy systems and traditional mindsets.

According to the Swiss Re sigma report, “Advanced analytics: unlocking new frontiers in P&C insurance,” results in improving expense ratios have spurred new investment by insurers in pilots that have given better visibility into underlying loss drivers.

True potential will only be realised through coordinated efforts between developers and users, although expectation of success in all projects could limit adoption and constrain a virtuous circle of trial and improvement, Swiss Re warns in the report.

“Most insurers aim for a success rate of one-third in operationalising pilots. Too high a success rate may mean that the use cases are not challenging enough,” says Daniel Knüsli, Swiss Re’s Head of P&C Analytics, P&C Solutions.

Exploring opportunities The Swiss Re Institute says it expects spending on data and analytics to rise within static IT budgets, as more insurers complete core systems updates over the coming years and seek out differentiating capabilities.

Advanced analytics should be considered from the perspective of

business capabilities rather than technologies, Swiss re stresses: “These include how to enable growth by using analytics to achieve an in-depth understanding of new market opportunities and new risk pools; how to better comprehend and influence customers; how to gain insights on risk accumulation and portfolio steering through linking existing portfolios with orthogonal external datasets; and how to improve efficiency by automating manual and repetitive tasks that take up valuable time for underwriters and claims managers.”

Advanced analytics pilots across several lines of business indicate healthy loss ratio improvements, the sigma research shows. “But for various reasons, results in real-time trading conditions may vary. All told, most insurers seem to be targeting around 2-5% improvement in loss ratios under real trading conditions,” the report concludes.

A holistic view The ability to gain useful predictive insights from ever-increasing amounts of data is challenging, warns Daniel Ryan, the Swiss Re Institute’s Head of Insurance Risk Research. “There needs to be more investment of time and resources on data curation,” he said in a statement. “Many new data sources are not created for insurance, and owners of the data may neither understand

insurance nor what needs to be done to make the data usable for insurers.”

In commercial property, insurers are using data to auto-fill underwriting criteria for new business and renewals and moving toward virtual inspection platforms. Data about location and occupancy can be modelled to produce risk scores that enable underwriters to base risk selection and price on market-wide experience, Swiss Re notes.

In marine, insurers can now use detailed behavioural and situational data on over 100,000 vessels to identify risky behaviour and monitor risk concentration, opening the path towards “pushing” the insured toward improved preventative measures, the report adds.

Knüsli says increasing interest in using advanced analytical tools is influencing Swiss Re’s business development: “We continue to see demand for P&C Analytics, which is part of Swiss Re’s P&C Solutions suite, to provide tangible data-driven business insights that help our clients grow their business, increase their profitability and enhance their efficiency.” l

Swiss Re Analytics client event

Discussing the use of data analytics in re/insurance; the experts will be available for interviews afterward:

Sunday, 8 September 2019 17:00 to 18:00 (CEST)


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• Surety Bonds















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Donny Tong


212.590.0976

[email protected]


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Barbara Aubry


212.303.4164

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