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Reinsurance CEOs preach patience in tight market

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The reinsurance industry is still facing pricing challenges, but there are some bright spots, a panel of CEOs said during the S&P Global Ratings Insurance Conference in New York.

“It's a tough market,” said Constantine Iordanou, chairman and CEO of Arch Capital Group Ltd., “On a scale of 1 to 10 … maybe we're a two or three. We're facing headwinds.”

Brian Young, president and CEO of Odyssey Re Holdings Corp., said that he agreed, noting that balance sheets have never been stronger, but, he added, in terms of pricing “we are in a very dark period, I think, for the business.”

“There are signs that the pressure is moderating,” he said at last week's conference.

Mr. Young said “the cat market, especially in the U.S., still probably offers the best returns in the marketplace today.”

Chris O'Kane, CEO of Aspen Insurance Holdings Ltd., said that unlike the insurance side of the business, where the number of clients is large, “the number of insurance companies is declining.”

“You have, especially in Europe, an increased use of models,” Mr. O'Kane said. “Models give sense of security. Some people would say they give a false sense of security.”

An April report by Aon Benfield Group Ltd. said the global market's reinsurance capital ended 2015 at $565 billion, unchanged from the third quarter of 2015, but down 2% from year end 2014. The report said strong operating performance of insurers and reinsurers through the year was offset by strengthening of the U.S. dollar and rising interest rates. Aon Benfield said that it expects the July renewals period to remain positive, with insurers likely to see improvements in pricing, terms and conditions similar to those for the first quarter of 2016.

“Pricing has moderated on the downslope,” Mr. Iordanou said. “Our renewals for the Florida season have been minus 3%. We're reaching the bottom, so it's not a question of how much capacity is available, it's is that capacity willing to take the risk?”

Mr. Iordanou also said that people have forgotten that “we had on the cat side a pretty favorable 10 years.”

“You have to be patient, disciplined, because you're walking through a minefield right now,” he said. “There are opportunities, but you have to be disciplined in the way that you approach them.”

“Diversification is important,” Mr. Young said. “You need a global network. You need to be globally diversified. And you need to have access to different distribution channels. If you're a Bermuda cat writer mainly concentrated on the U.S. market, it's going to be tough sledding.”

The discussion also covered retaining talent during tough economic times.

“People need know they're going to be there for the long term,” Mr. Young said. “The idea that … you're going to cut staff and reduce expenses … what happens when the market turns? You will lose the opportunity if you let go of the few people who are able to underwrite in a hard market.”