The 57th Reinsurance Rendez-vous, which begins with registration in Monte Carlo on Saturday, promises to be somewhat less stressful than many previous editions. A mass of warm air, combined with lots of dust from North Africa, has meant that to date there have been no hurricanes in the Atlantic. Which might change without a doubt, but at least no massive catastrophe will dominate the Rendez-vous this year - Unless??
That doesn’t mean there aren’t countless topics that those attending the annual conclave may be concerned with discussing, but not less than the cocktail parties will be a chunk cheerier. The discussions can be wide ranging, for the reason that Rendez-vous has become a totally international event, with more than 3500 people attending.
It started as a cushty celebration where reinsurance companies could discuss with reinsurance brokers in a central location to determine the rates/premiums for here year. somewhat with a purpose to certainly be discussed, but all these talks now ensue in October in Baden-Baden, a more discreet location.
The company executives and the brokers have been joined by virtually the rest of the insurance world - lawyers, consultants, catastrophe modelers, accountants, claims people, rating agencies, economists, a whole lot PR people, and last, but not least, loads of journalists.
There have been catastrophes. Swiss Re’s sigma report, released at the end of August determined economic losses at $56 billion for the principle 1/2 2013 with insured losses at 21 billion.
European floods ($4 billion), floods in Canada and elsewhere ($4 billion), heavy rains in Australia and plenty of parts of Asia totaled over $1 billion. The tornadoes that ravaged several states in the U.S. Midwest in May brought on $1.8 billion in claims. However, while these amounts aren’t insignificant, they pale in comparison to the disasters in 2011, where the floods in Thailand alone resulted in losses of $16 billion.
Ironically, however, it’s not the loss figures that are of concern for the reinsurers, it’s the capacity figures - there’s a substantial amount of. In 2011 and 2012 the reinsurers were wondering why, after some fairly expensive nat cats, rates weren’t going up round the board, only in those areas - Japan and Thailand - that suffered from the catastrophes.
This year they still aren’t prone to increase - in general; they'll probably be happening. There is a new villain chargeable for this - the capital markets. After years of trying to tap those markets the reinsurance industry has succeeded just a bit too well. Insurance linked securities (ILS) throughout the form of cat bonds, sidecars, loss guarantees and related hybrid instruments now provide the market with more capital than it's going to absorb - $510 billion as of June 30, 2013, in keeping with the Aon Benfield Aggregate (ABA) report.
In an interview with Bloomberg Nick Frankland, European head of Guy Carpenter, stated: “We estimate that secondary capital sources supporting the likes of insurance-linked securities and industry loss warranties make up a little less than 20 percent of the catastrophe limits purchased. This may represent a paradigm shift, and we can see that percentage build to anywhere above 50 percent over time.â€
That latter statement refers to the different types of institutional investors that have turned to the re/insurance industry for better returns on their investments than the existing very low interest rate environment can offer. Historically very conservative pension funds are investing heavily throughout the ILS market, and they won’t be leaving any time soon. Investment banks, hedge funds and private equity firms continue to invest as well.
The additional capital can be arriving at a propitious time, although inside the near term it depresses rates. Studies from the Geneva Association and the soon to be released report from the UN’s International Panel on Climate Change (IPCC) both stress the reality of climate change, and examine the probable effects it'll have.
A report from Guy Carpenter singled out rising sea levels since the greatest threat from climate change. Not only does the increase in temperature cause seawater to take in more volume, which raises sea levels, nonetheless it is often a component in melting polar ice caps, which then further increase the volume of water throughout the seas.
As was frequently reported, climate change may additionally cause a shift in weather patterns with more rainfall in some areas, which causes floods and landslides, and no more rain in other areas, increasing the opportunity of larger and more destructive brush fires. There'll certainly be discussions on climate change at the Rendez-vous.
There are also ongoing concerns centered on the definition of systemic risk, and to what extent it will likely be applied to major multi-national re/insurers. Coupled with this are all of the new regulations, including Solvency II and the IAIS standards that re/insurers are expected to deal with. Consistent with estimates from Deloitte, published by Bloomberg the industry spent $6.5 billion in 2012, just on regulatory compliance.
Cyber risks may well be described since the remaining elephant in the re/insurance room. Primary carriers, brokers and reinsurers are all busily developing products to house them, but questions remain. How well do they work? Should the emphasis be considering pre-event preparation, as Kidnap & Ransom coverage does? Or should it focus more on repairing the damage and paying the costs as a result of cyber attacks? Or both?
As you will discover there are numerous concerns on the minds of the participants, although no really significant catastrophic even has yet convulsed the reinsurance market in 2013. Watch this space for reports on some insights from the Rendez-vous.
