17 November 2014ILS

Reinsurers equipped for tough market

The latest finding from Bermuda:Re+ILS’s coverage of ILS Convergence 2014 is that the reinsurance industry is better informed and far more experienced that it was 20 years ago.

According to a panel of industry leaders at the PwC/S&P Bermuda Reinsurance 2014 conference in Bermuda this week, this means the industry is well equipped to deal with current market conditions.

“The reinsurance market today is more sophisticated than it was in late 90s – which may have been naïve, and not particularly professional,” said Costas Miranthis, president and CEO of PartnerRe.

“Today it’s very difficult to find someone who is completely irresponsible – they have models, they have better skills. So some of the excesses and stupid behavior you may have seen 15 years ago is not around today.”

Don Kramer, chairman and chief executive officer of ILS Capital Management agreed, outlined some of the major changes experienced in the current market.

“The current industry is going through a period of intense change,” he said. “We have not had interest rates like this since the end of World War II.”

He highlighted the fact that while the expectation may have been that low prices would lead cedants to buy more reinsurance, this has not been the case.

“For the first time we have watched demand for reinsurance decline as people retain more risk.” he said, emphasising two major issues for reinsurers in the current environment: the trend for people to use reinsurance as a form of alternative investment and the involvement of hedge funds in the market.

In this period of massive change, he said that there is a need for more analytics.

Jeremy Pinchin, chief executive officer for Hiscox Re, added that relevance is now critical in order to stay in the game.

“It’s about being able to produce products that solve their problems,” he said.

He said that Hiscox is well equipped navigate current market conditions due to its ability to move capital around within the company.

“As an insurance and reinsurance platform, we’ve made it quite clear we are reducing our reinsurance lines and moving it into more profitable insurance lines.

“We recognise our business model is set up around expanding and contracting according to market opportunity and we are able to move capital across. It enables us to manage in a complex market.”

Miranthis added that reinsurers with different capabilities and the ability to offer different services may invite business that is more attractive.

The panel agreed that market conditions will continue unchanged for the time being, but Pinchin added that the longevity of recent changes will remain untested until the market does alter.