Reinsurance To See Shake-out
By Mark E. Ruquet
NU Online News Service, May 3, 2:45 p.m. EST, Hamilton, Bermuda?The reinsurance industry will see considerable consolidation among its minor players over the next few years, while the top 10 continue to hold the vast portion of premium dollars, key reinsurance executives said.
The observation came during the 80th annual conference of the Alliance of American Insurers, held earlier this week in Hamilton, Bermuda. The comments were made during a panel discussion among six reinsurance executives entitled, "The Future of the Catastrophic Risk Markets."
The terror attacks on Sept. 11, Enron, mold and other events have changed the risk climate and caused volatility in the pricing cycle, observed Patrick Thiele, president and chief executive officer of PartnerRe.
"Anything that could go wrong did go wrong," Mr. Thiele remarked.
The current climate is leading to revaluation of risks and a change in appetite among companies, he said.
Traditional insurers are leaving the reinsurance business, which will lead to "complete separation" between reinsurance and traditional insurance companies in the next three to four years, Mr. Thiele predicted.
As a result, only so much premium market for reinsurance companies will remain, said Joseph P. Brandon, CEO of General Re Corp.
Of the $80 billion in insurance premium shared among the top 25 global brokers, the top 10 reinsurance companies controlled 82 percent of the market and 56 percent of those dollars were controlled by the top three, he said, leaving very little market left for the remaining 15.
"There are more sellers of reinsurance than buyers and it is only a matter of time before [companies begin to consolidate," Mr. Brandon said.
The attacks of Sept. 11 also impacted the catastrophic risk market by creating empathy, observed Anthony "Tony" Taylor, president and CEO of Montpelier Re Holdings, Ltd.
Countries worldwide realized that this type of event could happen anywhere. With this understanding, insurers also have come to realize that, unlike past catastrophes, an enormous amount of claims losses can take place within a small geographic area, he said.
James N. Stanard, chairman, president and CEO of RenaissanceRe Holdings Ltd., observed that these events underscore the importance of modeling for catastrophic risk. Modeling methods need to be all inclusive of risks to be effective and formulate adequate pricing.
When it comes to the underwriting of risk, pointed out Henry C.V. Keeling, president and CEO of XL Re Ltd. and Chris McKeown, co-president and chief operating officer of ACE Tempest Re, both warned that companies should not underwrite markets they do not understand.
"This is my opinion, but if [insurers] can't manage and price the risk then we should not sell it in the first place," remarked Mr. Keeling.
All of the companies, except General Re Corp., are Bermuda based. General Re is headquartered in Stamford, Conn.
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