S&P Finds Reinsurers Gloomy On Pricing

Reinsurance executives who attended a recent New York forum were not holding out much hope that their industry's current price softening cycle will end without too much financial pain, Standard & Poor's said.

S&P also reported that participants at its reinsurance forum said that even though softening prices have not yet begun to hit reinsurer bottom lines, management teams said they are already looking at how they can protect future earnings in a cycle that could turn out far different from all prior cycles.

The rating firm said Joseph Brandon, chairman of General Re, is not optimistic on the possibility of a soft landing to the current cycle.

"I think this cycle will end badly, as the fundamental economics of the reinsurance business have not changed," he said, according to S&P. "Exposures have been growing faster than premiums for a few years now, which is one definition of a soft market."

According to S&P, Partner Re President Patrick Thiele agreed, saying that although loss trends at this point are well constrained, "another loss cycle could lead to several years of poor results."

Mr. Brandon said S&P expressed concern about the two to three years it currently takes to identify loss cost trends. "If all the new tools could enable a soft landing in a market where capacity has been withdrawn and performance is poor, that's fine. However, the back-end tools currently available will not do the job until it's too late," he said.

Munich Re Chairman Nikolaus von Bomhard was quoted by S&P as saying he sees capital management as part of good cycle management, but he acknowledges that right now, it's "an uphill struggle" to convince the capital markets that a reinsurance business is well run.

S&P said Mr. Thiele commented that repurchases are not always the most efficient way to reward shareholders and "share purchases don't create economic value unless done at a level that's realistic to a reinsurer's value."