Today's Reinsurance Market - What Buyers Are Saying
Having recently met with reinsurance buyers throughout the United States, it is apparent that the insurance industry post 9/11 is undergoing a metamor-phosis unique to anything experienced in the past. This transformation is being driven in part by a difficult market for all casualty classes of business coupled with an overall improvement in pricing and market conditions for most classes of property risk.
What appears to be a growing sentiment among most buyers is that the new capital that came into the market post 9/11 has resulted in price stabilization and in some cases a reinsurance cost reduction. This has afforded most insurance carriers the ability to control their reinsurance costs particularly those related to Catastrophe Excess of Loss and Per Risk Excess of Loss Programs. The observations being made among reinsurance buyers as respects the new capital is that it is short term and most expect that the companies will ultimately consolidate which is similar to what occurred after the new capital went to Bermuda post Hurricane Andrew.
Some other observations coming from buyers of reinsurance include:
A lack of talent for sophisticated casualty lines and ART/Financial Products will limit the choices insurance carriers will have to properly manage risk.
Traditional Proportional and Excess of Loss Reinsurance has truly evolved to nothing more than a commodity with the difference in pricing driven solely by the quality of the security selected. Hardly anyone mentions "partnerships" or "relationships" with reinsurers anymore particularly with the more recent exit by St. Paul Re, Gerling Global, and the financial weakening of several other established house-hold names.
Most buyers recognize that 9/11 had a significant impact on the reinsurance industry. However, they also believe that poor underwriting results over the past six years driven by fierce competition among reinsurers to gain market share and show increased premium volume have contributed to an equal if not greater impact on reinsurers overall poor underwriting performance. While most see and hear senior executives saying that they are looking to underwriting profit-ability, the majority expects that competition and the intense struggle to retain premium volume will keep property premiums and conditions in check through 2003. For reinsurers to grow in the coming year, they are going to have to look at various lines of business other than property business and underwrite the business in such a way that it does not come back to haunt the market several years from now.
Insurance carriers need help with a number of issues that may require a reinsurer trading immediate capital enhancement for future financial rewards. Reinsurers need to appreciate the regulatory lag time that exists in today's market environment and should stop seeking immediate gains from clients in order to fix their own past mistakes. Many buyers firmly believe that had the new capital not entered the market to the extent it had, the existing market would have responded at recent renewals on a purely opportunistic basis.
Never before have I witnessed so many buyers willing to put their account out for bid. This is driven by a need not only to control expenses but also to shop for new capacity to replace reinsurers like Gerling, St. Paul, and various Lloyd's Syndicates no longer writing business. Furthermore, due to the poor results of the direct writers coupled with their adding significantly to reserves, their mandate is now to focus purely on achieving an underwriting profit and they have stopped reinsuring many companies, particularly small and medium size carriers, that in reality represent the mainstay of the reinsurance business.