C. Russell Fletcher III, Chief Reinsurance Officer of Montpelier Re, a Bermuda-based reinsurer formed last year by the White Mountains insurance group, offerred his analysis of the current trends in the reinsurance market to The Association of Insurance and Financial Analysts at a meeting in New York.
He limited his comments to property reinsurance and other “short-tail” specialty lines, and made some general observations of what he had seen during the January 1 renewal period.
“We continued to see healthy rate- levels in the U.S. property catastrophe line at 1/1/2003,” Fletcher stated. “Large buyers interested in attracting well- rated security again paid strong prices to ensure the complete placement of their programs. Rates-on-line were, in general, slightly up from last year, while rates-on- income were slightly down. Breaks on pricing were given where there was a decrease in exposure. On contracts experiencing loss, prices went up. Significant differences of opinion between buyers and sellers on price seemed quite rare.”
He noted “price weakening in a few regional programs where the quality of security was not of prime importance to the buyer,” and characterized the renewal season as having been ” remarkably smooth.” One notable exception, however, was “terrorism” and how it is to be addressed under contracts vis-à-vis the recent TRIA legislation. “The market is still trying to sort out the issue,” Fletcher observed.
He found that price levels in the international property catastrophe market “were stable, if not modestly higher, versus last year’s.” Exceptions usually involved “programs that experienced loss from European floods or certain aggregate covers that were heavily exposed to European windstorm and related perils. These programs saw dramatic price corrections.”
“Incumbent and new markets seemed, overall, to adhere to pricing discipline,” Fletcher continued. “The ‘short-tail’ reinsurance market seems to be in general price equilibrium. There is under-capacity in some areas and over-capacity in others, but the market is generally stable. Overall price levels are extremely healthy and better than I have seen in my entire career.”
He opined that a “well-balanced reinsurance book, reasonably leveraged, made up of the various lines that I have talked about today would generate, on an expected loss basis, ROEs that would be respectable by any historical measure.”
He also noted the “impressive starts” made by a number of the new Bermuda-based insurers. “Reinsurance buyers have chosen to be very accepting of these entities (they have clearly had other options) due to: strong, clean balance sheets; experienced managements; and technical quoting and large-line capabilities.”
Fletcher observed that three of the four new insurers were rated ‘A-‘ by A.M. Best , and one received an ‘A+’ rating “straight out of the shoot.” Comparing the recently formed companies to those created in 1992-94, Fletcher stated that they obviously “have deeper managements and more diverse business platforms.”
“The market is well ahead of the rating agencies in recognizing the quality of these new reinsurers, and the market is usually right,” he concluded.
Topics Reinsurance
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