The view from Rendez-Vous: amid the maneuvering, the Monte Carlo gathering focused on hurricanes, ratings and discipline.
Every September, the leaders of the world's insurance and reinsurance industries gather in Monte Carlo 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 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 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, 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 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 marked softening in both insurance and reinsurance has sharpened the calls for a discipline that would begin to wean underwriters away from the sharp ups and downs 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 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, chief executive of Norwich Union 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, 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 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 from Zurich Financial Services 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 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 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 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 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, 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, 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
A.M.Best Company # 85202
Distribution: Lloyd's accredited 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.
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|Title Annotation:||Rendez-Vous de Septembre|
|Date:||Nov 1, 2004|
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