Back to Basics.Reinsurers at the 45th Rendez-Vous de Septembre will focus on ways to make an underwriting profit Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. , now that investment profits are scarce.
Like students returning to classes after summer break, reinsurers are likely to discuss getting back to the basics at this year's annual Rendez-Vous de Septembre conference.
The 45th annual conference, held in Monte Carlo Monte Carlo (môNtā` kärlō`), town (1982 pop. 13,150), principality of Monaco, on the Mediterranean Sea and the French Riviera. , Monaco, is a time for the stars of the reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. industry to discuss the state of the industry.
This year, as the industry continues to rebound from 1999, the worst year for reinsurers in 15 years, reinsurers are primed to discuss how they've "hit the books"--their books of business, that is. Sound underwriting and improved pricing are necessary to return to profitability, as the market hardens and insurers can no longer rely on easy investment gains to make up for underwriting losses, said Hoyt Wood, global underwriter for GE Employers Reinsurance Corp.
"Two years ago, we were trying to convey this message and no one would listen," Wood said. "We were struggling at that time, and we were telling our customers and intermediators and anyone who could sit down for the proverbial half-for in Monte Carlo.
But last year was completely different, and we expect a continuation of that."
Clay Bassett, senior vice president of Swiss Re's Americas division, agreed. "We're seeing greater discipline on the part of our competitors and our customers. They're executing; it's not just an obligatory conversation," Bassett said. Swiss Re Swiss Re is the world’s largest reinsurer, now that it has acquired GE Insurance Solutions (Ligi 2006). Founded in 1863, Swiss Re now operates in more than 30 countries. General Electric owns 8.9% of the firm. also is scrutinizing its business, Bassett said. "We've looked at every single one of our contracts, without exception. The whole theme is, 'Why would we ever want to write a piece of business that doesn't meet our targets?"'
While net premiums written for the property/casualty reinsurance industry rose 12% to $21.99 billion in 2000, net income rose 24% to $1.97 billion, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. A.M. Best Co. data. But 2000 net income was still 67% lower than the $5.90 billion the industry posted in 1998.
And while 2000 was a more profitable year for reinsurers than 1999, the industry still was writing business at an underwriting loss. The industry's combined ratio rose to 116.4 in 2000 from 114.8 in 1999, and policyholders' surplus fell 4.6% to $56.20 billion.
Volatility in the stock market continued to hurt the bottom line, as unrealized gains fell $800 million in 2000, which followed the 1999 decline of $930 million in capital gains, according to A.M. Best Co. data.
With interest rates down, "the industry has already reaped all the capital gains it can. We're back to basics as an industry in a fundamental way," Wood said. "The only way to make money these days is through true underwriting operations. We're headed in the right direction, but we still have a long way to go."
Reinsurers talked about stiffer terms last year at the Rendez-Vous but ended up softening their stances during negotiations throughout the fall, said Rodman Fox, chief executive officer of Benfield Blanch blanch
to become pale. .
"This year, particularly with the programs that have had poor experiences, I would expect a stricter approach," Fox said. Reinsurers "are looking for Looking for
In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. a certain return, and if they don't get it, they won't write the business. I don't see anyone jumping for volume at the moment.
"Today, if people reach the hurdle rate Hurdle Rate
The minimum amount of return that a person requires before they will make an investment in something.
This is the rate of return that will get someone "over the hurdle" and invest their money. , whatever rate that is, there's ample capacity," Fox said. "The critical question for the fall and January renewals is, 'Is the capacity there?' And at the moment, it seems to be."
It will be interesting to see how natural catastrophe claims add up by this fall, Fox said. Hurricane season Hurricane season refers to a period in a year when hurricanes usually form. For more information see: Tropical cyclone#Times of formation.
For a lists of past seasons, see:
Tropical Storm Allison was a tropical storm that devastated southeast Texas in June of the 2001 Atlantic hurricane season. and a string of storms that swept through 16 states in April already have total cat losses for the first half of 2001 pushing $4 billion, according to the Insurance Services Office Insurance Services Office, Inc. (ISO) is a provider of data, underwriting, risk management and legal/regulatory services to property-casualty insurers and other clients. Headquartered in Jersey City, New Jersey, the organization serves clients with offices throughout the United Inc.
The reinsurance industry was hit hard in the fourth quarter of 1999, when it posted a combined ratio of 125.8 after several major storms in Europe. A combined ratio of more than 100 represents an underwriting loss.
Because the storms Lothar and Martin struck Europe in late December 1999, companies didn't have time to adjust their rates for the January 2000 renewals. They didn't get a chance to seek dramatic increases until January 2001.
For the first quarter of this year, primary insurers increased their rates about 10%, the first double-digit increase since 1987, Wood said.
"For this to be the first quarter of a 10% increase in 14 years tells you how far behind we are," Wood said. "But we're headed in the right direction"
ERG has been averaging increases of 10% to 20% but also is focused more on tighter underwriting, Wood said. Other reinsurers also seem to be seeking substantial price increases and tightening their underwriting, he said.
"I think everybody is singing the same songs. Whether they have a great voice or not remains to be seen," Wood said.
Swiss Re also has seen strong pricing increases, said Mark Lescault, head of the divisional underwriting office for the Swiss Re Americas division. For instance, Swiss Re has renewed facultative contracts for workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. with increases in the 20% range, with hikes as high as 30% to 50% for California workers' comp business. Liability has been running in the 10% to 20% range, while natural catastrophe coverage has increased by 25% to 30%.
"It's a great first step. But it's not enough to recover from prices being down 30% to 50% over the last five years," Lescault said.
For Employers Re, this year's underwriting goal "is to have the right price for the exposure and risks. Sort of getting back to basics, which is what we think the industry needs to do to get a price relative to some exposures vs. a market price or some price driven up and down by competition," Wood said.
Alternative Risk Transfer
Rendez-Vous attendees also are likely to discuss alternative risk transfer. Products such as securitization Securitization
The process of creating a financial instrument by combining other financial assets and then marketing them to investors.
Mortgage backed securities are a perfect example of securitization.
May also be spelled as "securitisation. and catastrophe bonds may become more attractive as the market hardens and reinsurance prices rise, Wood said.
Swiss Re's sigma study found catastrophe bonds accounted for nearly half of the insurance risk securitization transactions since 1996, and about $12.6 billion of capital-markets insurance products had been launched over that time period. While about $1 billion in cat bonds are issued annually, that number is expected to grow to $10 billion by 2010.
Other issues, such as asbestos and environmental claims and the new threat of toxic mold claims, also may be discussed, Wood and Bassett said.
Claims associated with individuals exposed to asbestos in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. will ultimately top $200 billion, consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee
business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a Tilinghast-Towers Perrin estimates, with the U.S. insurance industry likely to be saddled with about 30% of that total. Overseas insurers, including those based in London, continental Europe Continental Europe, also referred to as mainland Europe or simply the Continent, is the continent of Europe, explicitly excluding European islands and, at times, peninsulas. , Asia, Australia and South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. , will bear another 31%. Asbestos defendants, including manufacturers, distributors and premises owners, will retain the remaining 39% of the costs, according to the study.
Tillinghast's estimates dovetail dovetail
n a widened or fanned-out portion of a prepared cavity, usually established deliberately to increase the retention and resistance form. with a recent A.M. Best special report, which pegged the U.S. property/casualty industry's asbestos claims exposure at as much as $65 billion.
Toxic mold claims aren't likely to affect reinsurers as much as primary homeowners writers, because most large personal lines writers don't buy reinsurance on their homeowners business, Bassett said. However, mold could impact the reinsurance industry through liability coverage, he said.