The reinsurance renewal season is in full swing with the market’s biggest players all at Monte Carlo’s Rendez-Vous de Septembre (RVS).
The event brings reinsurers, insurers, brokers, lawyers, bankers, accounting and rating companies together to discuss issues concerning the market and to kick-start the annual negotiation process prior to the renewal of reinsurance treaties.
RVS is particularly important to the reinsurance world as many contracts are automatically renewed on 31 December. Therefore cancellation of contracts must be announced by the end of September. The event is also an opportunity to develop high level contacts which can lead to strategic alliances.
The picture so far?
Given the event falls during the North Atlantic hurricane season, catastrophes will be a popular topic between brokers and underwriters as respective positions on rates and terms & conditions are established.
Despite the reprieve from Hurricane Gustav, this year’s season has already seen an increase in the frequency of loss events. Among these were Windstorm Emma in Europe, flooding in the US and Australia and increased US tornado activity.
Also on the attendees’ agenda is the potential impact on reinsurance rates of reduced investment returns due to the global economic slowdown.
Agenda items
Analysts say that compared with their peers in the primary market, reinsurers have maintained their underwriting discipline over the past 12 months making this year’s renewal season one of the most difficult to predict.
Byron Ehrhart, President and Chief Executive of Aon Re Global Services and Chief Executive of Aon Capital Markets, says the reinsurance sector is entering its third stage in as many years.
“If you look back two years the reinsurance market was fragile with regard to its performance,” he explains. “Last year it was functional—those who wanted to buy could find sufficient capacity. Now it’s a softening market, although not yet soft, where there’s an excess of capacity over demand.”
Rating agencies expect Gustav to have a minimal impact on rates, although concerns are growing over the potential of three hurricanes currently building in the North Atlantic.
“The projections for insured damage from Gustav predict it won’t have a material effect on the balance sheets of major reinsurers or markets such as Lloyd’s. But it may put a brake on the current level of softening for rates, particularly in the property casualty classes,” said David Stephenson, Director in the insurance unit at Fitch Ratings.
However, according to Jonathan Turner, Chief Executive of Brit Reinsurance, rates are not the only agenda item at Monte Carlo.
“Following the recent announcement of the Aon/Benfield deal, mergers and acquisitions will be a hot topic,” he says. “Reinsurers have been better at keeping their discipline on pricing than our peers in the primary market where there’s more competition and pressure on rates. The fact is that we all have the same capital requirements: the requirement to deliver return on equity and the same models. So I think it’d be very difficult for one or two reinsurers to split from the herd and look to cut rates to capture market share.”
