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MONTE CARLO, Monaco — In response to predictions of a prolonged period of soft rates and a growing trend of cedents retaining more risk, reinsurers are seeking new areas of coverage in which they can grow.
Despite the soft market, many clients are adopting a long-term approach to buying reinsurance, and often are centralizing buying and using fewer reinsurers rather than opportunistically buying cheaper coverage, said Nick Frankland, Chicago-based CEO of Guy Carpenter & Co. L.L.C.'s Europe, Middle East and Africa operations.
This means brokers need to “find ways to use capital creatively,” Mr. Frankland said.
“Ultimately, the goal has to be to grow the pie” of reinsurance business, said Eric Anderson, Chicago-based CEO of Aon Benfield Group Ltd., the reinsurance brokerage arm of Aon P.L.C.
“We have the opportunity to help reinsurers to help our primary clients” by devising new products, he said during the Rendez-vous de Septembre gathering earlier this month in Monte Carlo.
Many risks such as flood have almost evaporated from the commercial marketplace and been assumed by governments over the past 20 years, Mr. Andersen said.
Brokers are working with the market to narrow the gap between uninsured and insured losses, said Patrick Hartigan, team leader for treaty reinsurance at Beazley P.L.C. in London.
The industry is, and should be, attempting to close the gap between economic and uninsured losses, said Jamie H. Veghte, CEO of reinsurance operations at XL Group P.L.C.
“Eight years ago, the largest insurance companies retained about 85% of their risks and ceded the remainder” to the reinsurance market, said David Flandro, global head of strategic advisory at JLT Re, the reinsurance arm of Jardine Lloyd Thompson Group P.L.C., in New York. “Now, that retention level is in the 90s.”
Increased cedent retentions mean “the cake is a bit smaller,” said Torsten Jeworrek, CEO of reinsurance at Munich Reinsurance Co.
But there are areas into which Munich Re is seeking to grow, including U.S. primary specialty risk business and coverage for cyber, energy, supply chain, nonphysical damage business interruption, weather and reputational risks, he said.
Axis Capital Holdings Ltd. also will likely expand its primary book, said Albert A. Benchimol, CEO and president of the Bermuda-based insurer and reinsurer.
Net of reinsurance, about 52% of Axis's premiums are derived from primary business and that is likely to grow as reinsurance prices weaken, Mr. Benchimol said.
“The reinsurance market was very attractive from 2008 to 2013, so we were able to grow that book. Today, we are likely to see the insurance book grow more,” he said.
“Are we desperate reinsurers — like "Desperate Housewives' — the talk of the town? We are not desperate,” said Denis Kessler, CEO of Paris-based Scor S.E.
Victor Peignet, CEO for Scor's global property/casualty unit, said there are areas of risk that barely are covered now by the reinsurance market, such as cyber liability and environmental liability outside the United States.
While reinsurers are interested in covering such risks, close collaboration is needed with primary markets to develop appropriate products, he said.
Cyber coverage also is an area of opportunity for reinsurers, said Ulrich Wallin, CEO of Hannover Re S.E.
He said Hannover Re likely will set up a dedicated unit for cyber risk.
Initially, Mr. Wallin said, the opportunity is in the United States, because that is where the majority of stand-alone cyber insurance is bought.
There still are areas where reinsurers can find profitable business opportunities, said Brian Duperreault, CEO of Hamilton Insurance Group Ltd. in Bermuda.
He said the company, which is in discussions about a possible entry into the Lloyd's of London market by linking with managing agency Sportscover Underwriting Ltd., among other expansion goals, will pursue business where technological resources offer an advantage.
“There's a lot of business where technology can make a difference,” Mr. Duperreault said. “It would probably be more on the frequency side than the severity side, so in the beginning, we'll probably be looking more at frequency risks. But we won't rule out severity.”
MONTE CARLO, Monaco — Investor appetite for insurance-linked securities and other alternative risk transfer options remains high despite lower prices for U.S. property catastrophe business.