Reinsurers Adopt ‘Wait and See’ Posture at Rendezvous

For the first time in two years the high and mighty from the reinsurance world have gathered for the annual Rendezvous in Monte Carlo without having to face the consequences of an ongoing catastrophe (Ivan in 2004 and Katrina last year). Sunny skies and warm weather, along with a notable absence of natural disasters, seem to have produced a generally upbeat outlook. The 2,000 plus insurers and reinsurers from around the world who are attending the 50th installment of the annual event that marks the beginning of the upcoming reinsurance treaty renewal season, are therefore using the interlude to evaluate their future.

Julian James, Lloyd’s Director of Worldwide Markets, joined by Chairman Lord Peter Levene and Franchise Director Rolf Tolle, indicated that the event acts as a timely opportunity to re-evaluate the past year. “It gives the market a chance to look back at the past 12 months and chart the progress it has made,” he stated in an interview on the Lloyd’s Website (www.lloyds.com.). “When you look back to last year, we were still coming to terms with Hurricane Katrina and working on the issue of process reform.

Swiss Re took the opportunity in a press briefing Monday morning to highlight its positive first half results, as follows:
— Overall net income up 16 percent vs. 1H 2005
– Total combined ratio of traditional non-life business at 92.7 percent
– Underlying portfolio profitability increased as a result of attractive rates and tighter terms & conditions introduced in previous years
– L&H continued strong contributor
– Good investment performance with ROI of 5.3 percent
– Acquisition of Insurance Solutions completed on 9 June 2006
– Operational expense savings still to come

For the future Swiss Re noted that “demand for cat cover has been growing by almost 10 percent annually, more than most other lines of business.” As a result “significant portions of the peak scenarios are increasingly passed on to the capital markets (e.g. ILS, ILW, sidecars).” It also indicated that “investors (and rating agencies) expect risk adequate and stable returns,” and that the “finance industry is confronted with increased volatility, more sophisticated risks and demand for increased capacity.”

Munich Re’s Chairman of the Board of Management Nikolaus von Bomhard at a press conference at the start of the Rendezvous stressed the Group’s ongoing commitment to maintaining underwriting discipline. Munich Re “stands by its proven principle of writing business only at risk-adequate prices, terms and conditions,” he stated. “We have satisfactorily absorbed — also in comparison with our competitors — the large losses from natural hazards events over the past two years. This is due to our consistent underwriting policy, our integrated risk management and our diversification.”

James added Lloyd’s endorsement to the sound underwriting mantra, indicating that the London market needs to maintain its discipline in the face of pressure to cut rates in areas outside of the United States. He noted: “Many of the companies in Lloyd’s have announced their interim results and Lloyd’s will announce its results at the end of the month. Those results have been strong. However this is a time when they need to maintain their discipline and stick with the commitments they made to the market. We have to avoid the temptation to ease that discipline.”

He acknowledged that for the first time for many years there was no overriding issue which would dominate the discussion in Monte Carlo. “In some respects September is too early this year. The market will not be able to make any cast iron decisions so early in the year because they are waiting to see what the tail end of the North Atlantic hurricane season will bring.”

James and some of the others seem, somewhat ironically, to actually miss the crisis atmosphere that has besieged the Rendezvous in recent years. The absence of any major hurricanes, terrorist attacks or other disasters to focus on has led to a wait and see attitude. The reinsurance industry might do well to count its blessings. It’s certain that the people of New Orleans, Florida and along the Gulf Coast are more than pleased may not to have to face yet another season of terrifying storms.