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SINGAPORE-The global reinsurance market will continue to consolidate through mergers and acquisitions, a reinsurance executive says.
"In the next two to three, and possibly four years, rates will decline further," Jacques Blondeau, chairman and chief executive officer of the SCOR Re Group, told attendees at the fourth biennial Singapore International Reinsurance Conference, held last month at Singapore's Shangri-La Hotel.
The soft market will delay the growth of catastrophe bonds and pure financial products, he predicts.
Mr. Blondeau pointed out that reinsurance rates will not rise in a hurry.
He said "common sense" will not prevail in the reinsurance industry as the quest for market share intensifies, because larger reinsurers will be trying to amass market share to justify expensive acquisitions to shareholders. And small reinsurers will "fight to the death" to retain their market share.
But neither an influx of capital nor softer demand are the major factors fueling overcapacity, Mr. Blondeau noted. He blamed the reinsurers themselves, saying they are becoming "more aggressive" as they seek to expand, or retain, market share.
Good technical results from cedents in the past three to four years have reduced their reinsurance needs, he noted, and the lack of catastrophes in the past three years has impacted heavily on the reinsurance markets.
Mr. Blondeau sees emerging markets in central Europe, South America, particularly Brazil, and Russia as "positive trends," however, pointing out that the positives exceed the negatives for reinsurers.
Average growth in demand is still 3% to 5% a year over the past five years, and the total global reinsurance market is now more than $NM100 billion, Mr. Blondeau said.
From 1992 to 1997, the number of reinsurers has dropped to less than 200 from 400, and that trend is likely to continue.
The two major reinsurance groups, Munich Reinsurance Co. and Swiss Reinsurance Group, now have a combined 31% market share, and the top four, including General Reinsurance Corp. and Employers Reinsurance Corp., command a combined 48% market share.
"We have become one of the most concentrated industries in the world," he said. As with other concentrated industries, such as airlines, chemicals and computer chips, that means increased competition.
While there is overall global overcapacity, different classes and markets fare very differently, with overcapacity most obvious in the property, marine, aviation and excess-of-loss catastrophe classes. Casualty, space and construction covers are "better balanced."
Reinsurers will need to use technology better and provide more sophisticated products for insurers, Mr. Blondeau said.
He warned that reinsurers would be "foolish" to think the low claims level in commercial classes will continue and that catastrophe claims will continue to be low.
Casualty lines, too, will see claims continuing from tobacco products, blood contamination and breast implants, and as reinsurers become larger through acquisitions, they will have to be wary of accumulating long-tail claims increasing their exposures.
Phua Kia Ting, managing director of Cologne Reinsurance Co. P.L.C. in Singapore, who moderated the session, said it would be "up to shareholders and the stock markets to make common sense prevail."
However, Mr. Blondeau said it is impossible to stop the competition that occurs through the increasing market concentration. However, "consumers are the winners. . .at least in the short term," he said.
During the question and answer period after the presentation, Mr. Blondeau said reinsurance brokers will follow the same trend of consolidation. "If we emerge with two or three megabrokers and nothing else, that could be a problem for insurers and reinsurers. Any market needs competition."
Dieter Losse, chairman and chief executive of reinsurance intermediary Greig Fester Group Ltd. in the United Kingdom, said the "middle ground" of reinsurance brokers needs to be strengthened to ensure the industry is not dominated by "megagroups," because that is "potentially unhealthy."
"I personally am skeptical about megabrokers and reinsurers managing business in the best interests of the customers," he said.
He said Greig Fester is "strengthening the middle ground" with its sale to Benfield Group Ltd. (BI, Sept 29). Mr. Losse will become deputy chairman of the new entity, Benfield Greig.