Guy Carpenter sees regulation shaping future of European reinsurance sector.

The Rendez-Vous de Septembre gives brokers an ideal vantage point from which to study the sparring between insurers and reinsurers.

"There's a lot going on" said David H. Priebe, London-based president for Europe and the United Kingdom of Guy Carpenter & Co. Ltd.

Priebe expects far-reaching effects in Europe from the onset of reinsurance regulation, with its accompanying focus on solvency.

"It will" Priebe said, "bring greater discipline in terms of how companies manage their balance sheets, how they start looking at all the risks within their overall enterprise."

Organizations servicing the reinsurance industry, Priebe said, will have to pay close attention to the promotion of transparency and the management of capital in a changing environment. "It's going to require greater input," Priebe said.

Information technology, Priebe said, will create both pressures and opportunities. IT will, for instance, make it easier for reinsurers, with the help of brokers, to service increasingly sophisticated specialty lines.

Priebe said the role of the broker in the European and London markets will shift from the traditional one of serving mainly as a transactional distribution point with access to both capital and providers.

While this function will remain important, Priebe said, the broker will now be involved at an earlier stage. The broker will, for instance, help clients understand their modeling of both liability and asset risk with an eye on financial, capital and underwriting management.

Priebe said that risk management is central to the service that Guy Carpenter provides to its clients. "We're doing a lot of portfolio mapping,' he said.

He said the newest area is trying to give clients a sense of terrorism risk. "It is probably one of the most difficult risks to manage" he said, adding that multiple lines can be involved in any single event.

Priebe expects international convergence to take place on the regulatory side. "In the regulations that are coming to bear," he said, "you're seeing more consistency and standards worldwide."

Priebe believes that convergence will help the industry by promoting transparency and commonality. "Covereds will be better able to judge the quality of the security that they're working with," he said. "And investors will be able to understand the balance sheets in terms of who they're putting money into."

Diversification is especially important in Europe, Priebe argued, because of the concentration of so much reinsurance business in a relatively few hands.

"So maybe that's an issue that people are going to start looking at more closely," Priebe said, "the degree of concentration with their counterparties."

Priebe said insurers face an eternal balancing act between getting the business and writing for profit. But within this context, he believes that discipline is now almost a given.

The future belongs to the underwriters who will be guided in a softening market by a commitment to technical expertise. "Those that are not applying those standards are going to be called into question," he said.--Robert O'Connor

Rendez-Vous Chairman Describes Changing Reinsurance Market

Continued market unification within Europe, two-way trans-Atlantic penetration and a capacity buildup by the biggest reinsurers have altered the shape of the global reinsurance sector in recent years.

This was the message presented by Jean-Philippe Thierry, president of AGF Group, at the closing press conference of the 48th Rendez-Vous de Septembre. Thierry also served as chairman of the RendezVous.

Thierry described an industry in which values have shrunk in a climate marked by ratings downgrades. "Over the last three years there has been a major destruction of value," Thierry said.

In its report, the RendezVous said that the world reinsurance market was worth $180 billion in 2003. Of this, 20% was life and 80% was nonlife. The direct insurance market, the report added, was worth $2.94 trillion in 2003, of which 43% was nonlife and 57% was life.

The two largest reinsurers, Munich Re and Swiss Re, had 2003 premiums, respectively, of $26.8 billion and $24.9 billion: The five leading reinsurers accounted for 17% of the market in 1980. They account for 46% of the market in 2003. The 10 leading reinsurers account for 56% of the market in 2003.

Thierry said the industry has undergone a cultural change over the years. "When I began my career, we were in the realm of gentlemen's agreements between companies," he said. "Now everybody looks closely at terms and conditions."

Thierry, who spoke in French with simultaneous translation into English, noted the capital that has been brought to the market by new Bermuda-based participants. "But this new capacity," he said, "hasn't compensated for the destruction of existing capital."

On the positive side, Thierry said, both profitability and combined ratios have improved. But he warned that there are no guarantees that these trends will continue.