Still looking good for buyers–comment

It seems that, despite the horrible run of catastrophes last year, very poor investment conditions and dwindling reserves there is just too much capital out there willing and able to bet on the reinsurance industry to force a capacity driven market change of any significance. Reinsurance broker Aon Benfield announced yesterday for example that, according to its latest edition of the Aon Benfield Aggregate (ABA), published in time for next week’s Monte Carlo Rendez-Vous, global reinsurer capital totalled a record $480bn at June 30 2012. This represents an increase of 5% ($25bn) compared with December 31, 2011. New capital that entered the sector during the period is estimated at $5bn. And rating agency Fitch said that it expects reinsurance price increases to actually slow in 2013 as supply exceeds demand across most classes of business in the next 12 months.hideThe rating agency said that current pricing remains adequate to support profitability across most reinsurance classes but that earnings pressure will return next year. Fitch anticipates further strengthening of the sector’s ‘already strong’ capitalisation and continued premium growth as the year develops. Its outlook for the global reinsurance sector understandably remains stable. With supply expected to outstrip demand in 2013 Fitch expects a reduced level of overall price increase at the key January 1 renewal, compared with that achieved at the same time last year, despite the prospect of a reduction in the overall rate increase achieved on renewed portfolios. This is all great news for large industrial insurance buyers in Germany and across Europe who have had to endure dire warnings about the need for a serious correction in prices and tighter conditions (more exclusions) in the near future. Insurers have tried every trick in the book to persuade the market that it is time for change and have, for example, tried to make as much benefit as possible from the predicted impending doom that will be caused by Solvency II. They cry it will result in an increased cost of capital and therefore necessitate pricing increases. This is a logical argument. Many risk managers agree that Solvency II will probably not help the industrial insurers throw capacity at their risks at such a healthy rate indefinitely. But if the reinsurance market is delivering combined ratios closer to 90% than 110% and fat profits that attract billions of dollars of fresh capital then the signs are not great for the big insurers from a primary pricing perspective. It seems highly likely therefore that Europe’s long pampered risk and insurance managers will enjoy at least another year of competitive insurance prices for their standard coverages and have to focus instead on the lack of innovation delivered by the same companies if they need something to seriously get their teeth into. Whether or not the bulk of the risk and insurance management community is able and willing to make the surely direct connection between eternally soft markets and lack of innovation is another question that may be tackled at this year’s Symposium. Enjoy the debate!

Still looking good for buyers–comment

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