Dave Matcham

Entering the Renewal Season

It only seems like yesterday that the build up to the Monte Carlo Rendezvous was upon us – and here it is again. What will be the talk this year?

Current trading conditions, current and future availability of capital, the “inactive” US windstorm season, are we in a hardening or soft market – these issues will all be to the fore.

The industry should not be scared to emphasise its financial strengths and robust position arising out of the global financial crisis. “Back to basics” seems to be a theme adopted by reinsurers to support business operations and maintain shareholder value.

Solvency II and other Governmental regulatory initiatives on systemic risk will also be part of the Rendezvous – perhaps not in actual renewal discussions but certainly taking the form of numerous informational brochures and business consultants visible in the halls and lobbies.

This year’s Rendezvous could have been held in the midst of far worse trading conditions eg an early devastating hurricane, but there should be no room for complacency, and I do not sense it now. In these times of compelling economic news, the maintenance of underwriting discipline, use of modelling tools and transparency of coverage will surely all be part of this year’s discussions.

What is in a Name?

As I sit amongst the reinsurance industry gathered together in Monte Carlo for the annual Rendez-vous, the mood is somewhat reflective. There is the usual talk of premium levels, retentions, capacity and the global financial situation but also various Christian names are prominent in renewal discussions. As an industry we like to refer to big losses by name or code. Andrew and Katrina is not a well-connected betrothed couple but two of the largest losses ever suffered by the Industry. Now the talk is of Hurricane Ike, last week it was Hanna and Gustav and possibly Josephine is round the corner although “not tonight”. At Monte Carlo three years ago we were already up to the letter “K” (Katrina) so things seem a bit better but the thought of four named storms in quick succession is certainly focussing the minds. Spare a thought for Haiti which seems to be in the path of all of them. Ike wrought significant damage over the weekend and is now battering Cuba and will probably make US landfall somewhere later in the week. These last black clouds may have a silver lining as the threat of further softening rates may be alleviated. The pressure on underwriting disciplines is enormous especially as investment returns and asset valuations are deteriorating.

The market is clearly resilient however – Gustav is estimated to be a loss of at least $5bn and this is deemed to be perfectly manageable. And yet, it will probably feature in the top ten Hurricane losses ever. One wonders therefore how big is a market changing event now? $15bn? $20bn? One can only speculate. Certainly two major losses in close succession would be catastrophic in many ways.

Of course we tend to more readily view these losses from a reinsurance perspective. Let us not forget the significant claims incurred by US primary insurers before reinsurance layers are touched – certainly multiples of the amounts which may be faced by UK insurers from last weekend’s major floods.

Monte Carlo seems more abuzz this year compared to last year, perhaps not surprising were the number of external factors to consider.