Steps that London reinsurers have taken to better manage their catastrophe exposures in response to the record hurricane losses of 2005 may not be enough, forcing them to take a new look at underwriting strategies, a survey of 20 players in the market–including Lloyd's–has revealed.
"When we did last year's survey, we saw a big investment had been made in underwriting discipline, and then [Hurricane] Katrina came along and made people think again about whether they had really focused–particularly in the area of aggregates," Andrew Kail, a partner with PricewaterhouseCoopers LLP, which conducted its fifth annual survey of the London market, told National Underwriter.
"The big changes that jump out this year are that people have gone back to the drawing board, particularly with underwriting strategy," he noted. "They're also looking to make sure that the data they have on the organization actually tells them what they need to know."
Philip Canlan, a partner with PwC in London, told an audience here at the annual Rendez-Vous de Septembre reinsurance gathering that although last year's hurricanes battered the confidence of reinsurer chief executive officers, who received some "pretty tough questions" from shareholders and stakeholders, "by May, two things stood out: their resilience, and their ability to change course pretty rapidly."
This resilience, he added, has allowed them to quickly institute changes.
Mr. Canlan said the survey–which focused on operational drivers within a company–found that of a list of key performance drivers, reliability and monitoring of aggregation models was at the top.
"We asked chief executives what was most important," he noted. "Underwriting issues is always at the top, but this year the effective monitoring of aggregation was definitely at the top of the list."
Second on the list of top concerns was the ability to achieve underwriting performance comparable to 2005, along with institutionalizing effective cycle management. Their third concern was embedding capital- and risk management within their day-to-day operations.
According to PwC, companies were confident of their financial prospects for 2006, but wonder how safe they are from another round of major disaster losses. They also question their global position in the face of increasing international competition.
To increase reliability of catastrophe and aggregation model results, the survey found that CEOs are looking at ways to enhance the quality and timeliness of their data and resulting analytical output, PwC said.
As well as the need to improve data input, respondents discussed data processing and turnaround to help speed up the production and relevance of information supplied to management.
The PwC survey also found that insurers' ability to optimize reinsurance expenditures and achieve consistently strong underwriting performance is being eroded by soaring reinsurance prices–most notably around this year's July renewal season.
The continuing withdrawal of retrocessional capacity presents a particular challenge, the survey found.
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