The view from Rendez-Vous: amid the maneuvering, the Monte Carlo gathering focused on hurricanes, ratings and discipline.
As corporate hostilities go, the Rendez-Vous de Septembre is very bearable bear·a·ble
That can be endured: bearable pain; a bearable schedule.
Every September, the leaders of the world's insurance and 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. industries gather in Monte Carlo Monte Carlo (môNtā` kärlō`), town (1982 pop. 13,150), principality of Monaco, on the Mediterranean Sea and the French Riviera. to begin the extended negotiations that will result in next year's renewal contracts.
The location of the gathering in what is probably the world's most famous resort helps set the tone. Monte Carlo, which lies on the Mediterranean coast, is the capital of Monaco, a French-speaking principality with a deep appreciation for the most expensive things in life. Just the ticket for high-paid executives to bring their egos for a few days of pampering. It is little wonder that the Rendez-Vous has established itself permanently in Monte Carlo since the first meeting back in 1957.
Insurers and reinsurers arrive in Monte Carlo with basic, mirroring agendas. The insurers want to pay as little as possible in premiums while extracting the most favorable terms and conditions. The reinsurers want to maximize their incomes while minimizing their potential exposures.
To Grahame Chilton, chief executive of London-based reinsurance broker Benfield Group Benfield Group Limited is a reinsurance and risk intermediary based in London, England. It has been listed on the London Stock Exchange since June 2003 and is a constituent of the FTSE 250 Index. Ltd., the atmosphere this year at Monte Carlo was a continuation of the familiar theme of buyers and sellers working toward decisions on whom "they want to do business with and how they want to do it."
As a broker, Chilton said in an interview during the conference, his priority is to be seen adding value to relationships between cedants and reinsurers. "What we bring to the conversation," he said, "is choice, structuring ... distribution--all of those issues which help in terms of insuring that the customer is comfortable with the product he buys."
Chilton said that since the terrorist attacks on 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. on Sept. 11, 2001, there has been a structural shift from the direct market to the broker market. This, he argued, has worked to the advantage of the brokers, with their ability to assemble packages of cover.
Talking About the Weather
As reinsurers and insurers stake out their positions each year at Monte Carlo, they must remain aware of recurring re·cur
intr.v. re·curred, re·cur·ring, re·curs
1. To happen, come up, or show up again or repeatedly.
2. To return to one's attention or memory.
3. To return in thought or discourse. , and new, issues that are likely to affect the negotiations. Hot topics this year included the weather, the role of rating agencies and the ability of reinsurers to maintain discipline in what was generally agreed would be a softening market.
The timing of the annual Rendez-Vous--during hurricane season--all but guarantees that talk of the weather will involve more than the local forecast. Attention this year was once again drawn to the Caribbean, from where hurricanes Charley, Frances and Ivan successively targeted the U.S. mainland--followed later by Jeanne, well after the delegates had scattered.
The general feeling was that the hurricanes wouldn't cripple crip·ple
One that is partially disabled or unable to use a limb or limbs.
To cause to lose the use of a limb or limbs. the reinsurers but would give welcome support to rates as the market softens. But Clement Booth, chairman and chief executive of Aon Re International in London, warned against expecting too much tightening from the hurricanes. Booth said that Aon Re's annual survey of the reinsurance market indicated a feeling among respondents that the combined effect of the hurricanes wouldn't be enough to "reverse the downward trend in cat pricing." Aon had sought the views of 50 European insurers and reinsurers.
Or, as Jose Sanchez-Crespo, London-based general manager of A.M. Best Europe Ltd., told a press conference: The hurricane activity "could soften the softening" rather than reverse it.
The impending im·pend
intr.v. im·pend·ed, im·pend·ing, im·pends
1. To be about to occur: Her retirement is impending.
2. marked softening in both insurance and reinsurance has sharpened the calls for a discipline that would begin to wean wean (wen) to discontinue breast feeding and substitute other feeding habits.
1. To deprive permanently of breast milk and begin to nourish with other food.
2. underwriters away from the sharp ups and downs ups and downs
Alternating periods of good and bad fortune or spirits.
ups and downs
alternating periods of good and bad luck or high and low spirits of previous years. Among the most prominent voices in this has been that of Lloyd's, which has pledged to do all that it can to encourage profitable underwriting Underwriting
1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt).
2. The process of issuing insurance policies. within its own market.
Julian James, director for worldwide markets at Lloyd's, visited the Rendez-Vous and expressed guarded satisfaction at some of the trends he was seeing. In an interview, he praised the "stability and maturity" of the reinsurance market. As evidence for this, James pointed to the half-year results of the U.S. reinsurance industry. "We are coming out with a combined ratio of about 96%," James said. "It still shows there is a lot more work to be done to restore profitability."
The conference heard of British concerns about the possible rise of a U.S.-style "compensation culture" in the United Kingdom. Patrick Snowball snowball: see honeysuckle. , chief executive of Norwich Union Norwich Union is an insurance company in the UK. It is the biggest life-insurer in the UK, and has a strong position in motor insurance. It is part of the Aviva group, itself created by a merger of Norwich Union and CGU plc in 2000. Insurance Ltd., told a forum that the industry should do more to educate the public that expensive insurance claims amount to a cost on society. "I do believe that this is an issue that affects everybody in their daily living," Snowball said.
The focus--negative, as it turned out--of the rating agencies this year was on Converium Holding Ltd., the Swiss reinsurer re·in·sure
tr.v. re·in·sured, re·in·sur·ing, re·in·sures
To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. , which received a string of downgrades that raised questions about the ability of the company to survive. A.M. Best Co. was among them, with a downgrading downgrading
A reduction in the quality rating of a security issue, generally a bond. A downgrading may occur for various reasons including a period of losses, or increased debt service required by restructuring a firm's capital to include more debt and less of Converium from A- (Excellent) to B++ (Very Good). There were concerns that other reinsurers also were in danger of being downgraded. One potential problem is the difficulty that companies may face raising capital in a soft underwriting market.
Converium, a 2001 spin-off The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. from Zurich Financial Services Zurich Financial Services Group is a major financial services group based in Zurich, Switzerland. Global operations
The US consumer market is served primarily by Farmers Insurance Group the third largest personal lines property & casualty insurance Group, already had given investors pause this year in the form of a profit warning, the posting of a second-quarter loss and announcements that it needed to beef up its reserves.
Comparisons were made between Converium and the French reinsurer Scor, which was downgraded in 2003. But Benfield's Chilton rejected quick parallels with Scor. Not only are the two situations very different, he said, but the reinsurance market itself is weaker than it was a year ago. "I think the continental buyers gave Scor the benefit of the doubt and supported the relationship in terms of the brand," Chilton said.
Chilton declined to predict Converium's prospects. He noted that some of the company's underwriting wasn't done by the current management. "There are some very good people inside Converium," Chilton said, "and it's a very good business."
Denis Denis, king of Portugal: see Diniz. Kessler, chairman and chief executive officer of Scor, also rejected comparisons between Converium and Scor. He told a press briefing that the situation of the two companies was very different. Kessler also pointed to the steps that Scor has taken to improve its position.
Scoffs first response to its difficulties was to launch a reorganization plan A scheme authorized by federal law and promulgated by the president whereby he or she alters the structure of federal agencies to promote government efficiency and economy through a transfer, consolidation, coordination, authorization, or abolition of functions. it called "Back on Track." This involved strengthening both reserves and the capital base, lowering premiums, restructuring the group and devising a new underwriting strategy. Converium also moved away from the United States, which Kessler said is among the world's most rating-sensitive markets.
In September 2004, Scor unveiled its "Moving Forward" plan, by which it hopes to improve its profitability and boost its ratings. Scor is rated B++ by A.M. Best as of Oct.14, 2004. The plan involves an attempt to increase the share of life business in Scoffs portfolio to 50% from 47%. Life, Scor has pointed out, is less cyclical cyclical
Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. than non-life. Kessler refused to criticize the rating agencies. "Rating agencies' mission is to rate," he said. "My mission is to write the book."
'Reinsurance Is Back'
John Coomber, chief executive of Swiss Reinsurance Co., offered an optimistic op·ti·mist
1. One who usually expects a favorable outcome.
2. A believer in philosophical optimism.
op forecast for the industry. Reinsurance, Coomber told a press conference at the Rendez-Vous, performs the important function of helping businesses diversify their risk. "I think the fundamentals of our business are good," he said.
Thomas Hess, Swiss Re's chief economist The Chief Economist is a single position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of responsibility encompassing the , told the same press conference that the past few years have seen a renewed appreciation for the role of reinsurance. Hess said that reinsurance performs a particularly important role in providing capital for economic expansion in emerging markets, notably in Asia. "Reinsurance is back," Hess said.
Coomber said the growing diversity within the reinsurance business suggested that the next phase of the cycle would be less pronounced than those of the past. He said that different lines and different categories will respond to different pressures. Moreover, Coomber said, underwriters have increasingly sophisticated tools with which to track trends and risks.
Scor's Kessler broadly agreed with this analysis. He spoke of the emergence of a "fragmented cycle" that is likely to see increasing rates in Europe and falling rates in the United States. "There will not be a generalized decline in rates in 2005," Kessler told a press briefing, adding that all of this is good for the industry.
Another characteristic of this fragmentation, Kessler said, is that there is likely to be less pooling of reserves by organizations from one territory to another. "Competitive forces are such that you have to make money market by market," he said.
Hess noted the decline in combined ratios to levels not seen since the 1970s. "The higher profits in the industry in the second half of the '90s were based on investment results," he said. "Today they are based on underwriting."
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. , Hess said, expects interest rates to rise. In the short term, he said, this can weaken the value of bonds. But in the longer term, he added, it should lead to better investment results. Hess said one of the main lessons for the industry between 2000 and 2003 was that a combination of a soft underwriting market and a stock-market crisis "is a dangerous mix for reinsurers."
* The general feeling at Rendez-Vous was that the hurricanes of August and September wouldn't cripple the reinsurers but would give welcome support to rates as the market softens.
* Among the most prominent voices calling for underwriting discipline has been that of Lloyd's, which has pledged to do all that it can to encourage profitable underwriting within its own market.
* Rating agencies' downgrading of Converium Holding Ltd. raised concerns that other reinsurers also were in danger of being downgraded.
A.M. Best Company # 84394
Distribution: Reinsurance brokers and direct
Lloyd's of London Not to be confused with Lloyds Bank or Lloyd's Register.
Lloyd's of London is a British insurance market. It serves as a meeting place where multiple financial backers or “members”, whether individuals (traditionally known as
A.M.Best Company # 85202
Distribution: Lloyd's accredited accredited
recognition by an appropriate authority that the performance of a particular institution has satisfied a prestated set of criteria.
cattle herds which have achieved a low level of reactors to, e.g. brokers
Norwich Union Insurance Ltd.
A.M. Best Company # 85250
Distribution: Insurance brokers and direct
A.M. Best Campany # 85027
Distribution: Direct and reinsurance brokers
Swiss Reinsurance Co.
A.M. Best Company # 85009
Distribution: Reinsurance brokers, insurance brokers, direct
For ratings and other financial strength information about these companies, visit www.ambest.com.