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Reinsurance pricing cycle on hold as capital swamps market

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Reinsurance pricing cycle on hold as capital swamps market

MONTE CARLO, Monaco — The flood of capital in the reinsurance market is suppressing rate increases as supply outstrips demand, but the excess capacity could eventually be needed to cover risks that are uninsured, a panel of insurance sector CEOs said.

Reinsurers may need to develop closer relationships with governments to access those uninsured perils, however, and until then, the traditional reinsurance pricing cycle may not return, they said during a panel discussion at the Rendez-Vous de Septembre in Monte Carlo, Monaco, on Tuesday.

While reinsurers expected price increases after the more than $140 billion in catastrophe losses in 2017, only limited rate hikes were achieved, said Denis Kessler, chairman and CEO of Scor SE in Paris.

Like most catastrophe losses in the past 30 years — with the exception of Hurricane Andrew in 1992 and the Sept. 11, 2001, terrorist attacks on the World Trade Center — the 2017 catastrophes were not seen as outside of the probabilities reinsurers considered when underwriting the risks, he said.

“The only event that could maybe today ever impact (in the same way) as Andrew or the WTC would be a cyber collapse worldwide,” Mr. Kessler said.

The traditional pricing cycle has changed because “it’s a world of super-abundant capital and alternative capital is a part of that,” said Dan Glaser, CEO of Marsh & McLennan Cos. Inc. But capital markets investors are also attracted to the insurance sector due to the noncorrelation of risk with other asset classes and scarcity of alternative investments.

“So, it’s not quite as pure supply and demand as it may have been in the past,” but abundant capital remains the main driver of market changes and a $100 billion loss is no longer enough to drive significant pricing changes, he said.

Capital markets investors, such as pension funds, also are searching for increased investment returns as they faced the prospect of an aging society, said Christian Mumenthaler, group CEO at Swiss Re Ltd.

Therefore, “it’s probably here to stay” and it’s an efficient way to cover catastrophe risks, he said.

Increased third-party capital does present risks to the market, however, Mr. Mumenthaler said, because there is “more and more separation of those who understand the risk and those that provide the capital.”

Eventually, though, as only about 15% of the world population is insured against catastrophe risks, there could be an increased demand for capacity, he said.

There is a huge potential demand for reinsurance capacity, agreed Emmanuel Clarke, CEO of Partner Re Ltd. in Bermuda.

“Everybody says there’s a wall of capital waiting at the sidelines, but I would argue that there’s also a wall of new demand waiting at the sidelines that just needs to materialize to be put in front of that excess capital,” he said.

It’s surprising that governments aren’t “derisking” and working with insurers and reinsurers to provide more private capacity for insurable risks, said Dominic Christian, executive chairman of Aon Benfield International and CEO of Aon UK Ltd.

“I don’t know if we are connected to governments in a way that we can (be),” he said. Banks, for example, seem to have stronger connection with governments than insurers, he said.

 

 

 

 

 

 

 

 

 

 

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