Road to renewal: insurers size up reinsurers in a different way at each of three fall gatherings that culminate in new annual pricing agreements.

On Sept. 11, executives of the global reinsurance industry will gather in Monte Carlo for their annual sojourn in the sun. The Reinsurance Rendez-Vous de Septembre, first held in 1957, has a casual air that befits the famous Mediterranean resort. Hospitality is of the outdoor kind, and discussions tend to be informal.

But this is no vacation. The Rendez-Vous is the first of the three major reinsurance gatherings that are held in the fall. It will be followed by the Baden-Baden, Germany, conference from Oct. 25 to 29 and by the annual meeting of the Property Casualty Insurers Association of America in Washington, D.C., from Oct. 24 to 27.

Usually the PCI meeting (which used to be known as the National Association of Independent Insurers annual meeting before the association's merger with the Alliance of American Insurers) follows Baden-Baden by several weeks. In a presidential election year, however, the trade group moves its convention up, largely because members want to be back home to vote on Election Day, said PCI spokesman Joe Annotti. Each of the three conferences represents a major step toward the next renewal season.

Frank Schaar, executive vice president for standard property and casualty reinsurance at Swiss reinsurer Converium Group, regards Monte Carlo and Baden-Baden as the most important events on the European reinsurance calendar. "The simple reason for Monte Carlo's lasting appeal is that it still provides an excellent and established platform for senior executives to keep in touch," Schaar said.

Baden-Baden offers cedants, brokers and reinsurers the opportunity to "put their money where their mouth is" and settle renewal terms, Schaar said. He described the Property Casualty Insurers meeting in Washington as "another important industry event, but it has a strong focus on the North American market."

Like Monte Carlo, Baden-Baden, in southern Germany, is a well-known resort. Once a haven for royalty attracted by its hot springs and surrounding forests, Baden-Baden was known in the 19th century as Europe's summer capital. But the style of this conference is different. Baden-Baden is known more for detailed, line-by-line contract discussions than for surfside bonhomie. The PCI conference is the largest annual meeting of property/casualty executives in the United States. It attracts executives up to the chief executive officer level, brokers and reinsurers.

Bumps in the Road

Adrian Clark, head of Europe for London-based brokers Benfield Holdings Ltd., said that one unpredictable issue for Monte Carlo is whether there will be a major loss. "The U.S. hurricane season won't be over at that stage," he said.

Another question, Clark said, is where rates are headed. "What happens to pricing?" Clark asked. "Will people maintain the discipline or not for 2005?" Clark said that there are a number of pressures on reinsurers to pursue a positive technical return. These include regulatory scrutiny over solvency, expectations of continued low interest rates and the demands of investors for profits. "I would say the prognosis is more likely that the discipline will be broadly maintained and that the cyclical effect will be less pronounced than it was previously," Clark said.

Schaar believes that, like last year, technical profitability is likely to be the subject of discussion--particularly, he added, if the market does not see a major catastrophe between now and the opening of the conference. Schaar also stressed the importance of continuity. "Clients have been and are more and more worried about finding reliable reinsurers," he said. "In the difficult market environment, clients are looking for financially strong big or midsized reinsurers that are still going to exist in three or four years' time."

Schaar described the state of the reinsurance industry as good. Profitability is reasonable, he said, and transparency--or the information flows about risks--has improved greatly. "Highly sophisticated risk assessment is the basis of any underwriting decision," Schaar said.

Schaar said that lead reinsurers' use of customized risk assessment and pricing tools suggests a reduced role for following reinsurers who assume smaller pieces of the risk. "I expect a further consolidation or even market exits amongst smaller reinsurers," he said.

Schaar said that ratings downgrades, coupled with the disappearance of some reinsurers, have increased the importance of financial security. "Predictability will be the magic word for cedants," he said. "In this context, there will be a strong focus on special termination clauses."

Munich Reinsurance Group is also confident that premiums will hold up into next year. In a statement prepared in response to written questions, the company noted that adequate pricing was maintained over the past year by a combination of market discipline and highly refined efforts to limit risks and assign them to the right parties. "We expect this discipline to continue," Munich Re said, "as market participants have learned that the insurance/reinsurance business has to be profitable on a stand-alone basis independent of investment results."

Clark suggested that mergers could be on the horizon as an issue, if only to provide the venture capitalists who entered the reinsurance market in the 1990s with an exit strategy.

New Twists and Turns

Clark, who has been to Monte Carlo 21 times and to Baden-Baden 26 times, said that the atmosphere at each meeting has changed over the years. Monte Carlo has seen an increase in the number of attendees and has taken on "a higher legal aspect." with greater specialist input from lawyers, accountants and consultants. "It has become a harder-working meeting," Clark said.

Monte Carlo has become less French over the years, Clark said, while Baden-Baden has become less German. In 1979, he recalled, Baden-Baden shed its German marine element and began to focus strictly on reinsurance. This shift broadened the appeal of the conference. "Throughout Europe it has become a critical meeting," he said of Baden-Baden. But even today, there is a muted French presence at Baden-Baden and a relatively small German presence at Monte Carlo, he said.

Munich Re views both gatherings as important, within an intensifying business climate. "These conferences are a very good opportunity to meet many clients from various countries at one place and so find a good forum to discuss matters of common interest," Munich Re said in its statement. "Nevertheless, we feel that time pressure is increasing, so that fewer and fewer participants can stay for the whole week."

Munich Re also noted the difference in style between the two conferences. Monte Carlo, it noted, revolves around meetings, roundtable discussions and conferences. In Baden-Baden, "concrete terms and conditions of the bilateral treaties are discussed between the reinsurers and their clients."

Important First Step

Monte Carlo undoubtedly sets the scene. In addition to property/casualty reinsurers, the Rendez-Vous is popular with brokers, insurers, financial services specialists and representatives of rating agencies.

In the past, the Rendez-Vous has been touched by events of interest to its delegates and to the world at large. The conference was in session on Sept. 11, 2001, as terrorist-piloted airliners crashed into the World Trade Center and the Pentagon. Last year, some representatives of Bermuda's substantial reinsurance industry were prevented from traveling to Monte Carlo because of the arrival on the island of Hurricane Fabian.

This year's Rendez-Vous is likely to focus on such topics as pricing, ratings and overall performance. There may also be some attention to terrorism wordings.

There is a broad expectation that the current sustainable levels of pricing will hold in a market where discipline is regarded as a necessary anti-dote to the effects of the continued weakness of investment markets. Reinsurers are still smarting from last year's ratings downgrades, and they would appear to have no reason to look for relief on that front. Their overall confidence is likely to be buoyed by the continued absence of major catastrophe claims.

"Baden-Baden will be more of a continuation of what is discussed at Monte Carlo," Clark said. "The key issue is to what extent pricing discipline will hold."

Jean-Michel Mangeot, corporate secretary of the French insurer AGF Group, said that Monte Carlo gives the insurers a sense of the intentions and capacity of the reinsurers.

"Nobody has ever seen any contract between insurers and reinsurers being signed in Monte Carlo," Mangeot said. "So people do not go there for making deals. But what is essential is that it is a unique opportunity to meet everybody for the first time in just one location."

Mangeot would not offer any predictions about the specifics of this year's negotiations at Monte Carlo. As an insurer, he said, he would like to hear about such topics as capacity and price stability. The purpose of Monte Carlo, Mangeot said, is not to offer a discussion of specific reinsurance issues but to provide the attendees with a general sense of the state of the reinsurance market. "This is the success of the conference," he said. "People continue to come back."

Munich Re is very aware of the role of the ratings agencies. "Munich Re is actively creating the basis for regaining a better rating," the company said. This effort has included its capital increase in the fall of 2003, reducing its risk concentration by reducing its investments in the financial services industry, centralizing its risk management operations and improving its market performance. "How these measures are assessed is a matter for the rating agencies," Munich Re said.

Clark does not foresee further movement on ratings. "There is a feeling now that the thing is settling down a bit," he said.

Munich Re warned of some possible changes in conditions as the renewal season approaches. The company voiced some concern, for instance, about the French market, where "we need to increase our knowledge of the risk exposure of the client portfolios we reinsure." This conclusion, Munich Re said, grows from a comparison of risk and claims information with other markets in Europe. It is not inevitable, Munich Re said, that better knowledge of the portfolio will lead to an increase in premiums.

Munich Re said that attaining an understanding of the French market can be a particular challenge, given the role of French legislation and the effect of liability awards in such areas as auto, medical malpractice and professional indemnity.

"Munich Re and the French insurance market are still evaluating the impact of these developments on risk exposure," the company said. "As far as necessary, we will adjust our underwriting and pricing strategies accordingly."

Key Points

* Rendez-Vous de Septembre in Monte Carlo will be the first of three conferences leading up to the reinsurance renewal season.

* Baden-Baden, in Germany, will focus on the nuts and bolts of contract details.

* The Property Casualty Insurers Association will bring top executives of the U.S. insurance ans reinsurance market to Washington in October.

Learn More

AGF Group

A.M. Best Company # 85129

Distribution: Multiple channels

Converium Group

A/M. Best Company # 84394

Distribution: Reinsurance brokers

Munich Reinsurance Group

A.M, Best Company # 86577 (Muenchener Rueckversicherungs)

Distribution: Reinsurance brokers

For ratings and other financial strength information about these companies, visit www.ambest.com.