The industry flocked to the annual Rendez-Vous last week and Global Reinsurance, sister title to Insurance Times, was there to bring you all the news.
Ratings outlooks could turn after 1 January
All the major ratings agencies have given a stable ratings outlook to the reinsurance sector. But will these outlooks change if reinsurance prices soften at the January 2009 renewals?
“While we are retaining the stable outlook we have had for the past two years, our caution is heightened due to macro-economic challenges, both in terms of investment performance and claims in the future,” said Peter Grant, director, financial institutions ratings services at Standard and Poor’s, in an interview with Global Reinsurance in Monte Carlo.
“If prices do not stabilise at the January renewals we would change our outlook to negative,” he added.
Pano Karambelas, senior analyst at Moody’s Investors Service, said: “Moody’s current outlook takes into account some expectation that prices would continue to soften.” He added that Moody’s expects a softening in the range of 10%-15%.
Karambelas said the reinsurance sector was in a good position to weather capital market turmoil and normalised catastrophe activity. However, he added that the position could be different if a major natural catastrophe occurred.
“Given the state of the credit markets capital may not be as available. So companies could have problems post a large cat event,” said Karambelas. “But right now the industry is in a good position.” Problems could be especially acute for smaller start-ups or those with large losses.
Aon-Benfield deal changes market
The recently announced merger between Aon Re and Benfield gives the new entity considerable market clout. The combined Aon Re-Benfield would have a turnover of $1.6bn (£905m) compared to Guy Carpenter’s $900m (£509m), and Willis Re’s $600m (£340m).
Some at the Rendez-Vous are asking whether there will be job losses at the new organisation. The merger partners, Aon and Benfield, have announced that they expect cost savings by 2009.
Paddy Jago, chief executive of Willis Re in the US, refused to comment directly on the merger. But he said: “Willis is always looking for top-quality people. If there are any people from Aon, Benfield, Guy Carpenter or any other broker who like the sound of that, here is my phone number.”
There was speculation in the cocktail bars of Monte Carlo that the price Aon is paying for Benfield, 350p a share, may have been pushed up by earlier strong interest from Willis in a bid for Benfield.
Jago refused to comment on the bid rumour.
Cat bonds are here to stay, says Willis
New issues of cat bonds in 2008 may total $5bn to $6bn (£2.8bn-£3.4bn), according to Mark Hvidsten, chief executive of Willis Capital Markets.
“It is likely that the total will be smaller than last year,” he said in Monte Carlo. New issues in 2007 hit a record $7bn.
“For certain types of exposure, and given certain financial objectives, ILS [insurance linked securities] is the best answer available, taking into account credit risk,” he said.
Hvidsten acknowledged, however, that the appetite of capital markets was cyclical. “When the reinsurance market is soft, traditional reinsurance is more appealing in a wider range of cases. But ILS is here to stay,” he added.
This sentiment was echoed by others at the Rendez-Vous. “The cat bond market is here to stay,” said Sarah Hibler, senior vice-president at Moody’s Investors Service. “The reason it took off post-Katrina is that traditional reinsurance dried up, and what was available was very highly priced. Now there is more capacity in the market and prices are cheaper, people are leaning more towards buying traditional reinsurance,” she added.
Emmanuel Modu, managing director and global head of structured finance for AM Best, said: “New cat bond issuance in 2008 probably will not outpace the 2007 issuance amount of $7.33bn. In August 2008, cat bond issuance was about $2.73bn, compared with about $5.38bn in the same period of 2007.”
He added that credit market turmoil and the soft reinsurance market were affecting cat bond pricing in 2008.
Reports by David Sandham, editor, Global Reinsurance
Handshakes and cocktails, but few deals
Executives from the worlds biggest reinsurance companies braved sweltering heat, countless parties and even more meetings at the 2008 Rendez-Vous in Monte Carlo.
They flocked to the Cafe de Paris, or the lobby of the Hotel de Paris, or the Hermitage, waiting for their next appointment. Sometimes they could be seen scrutinising name badges,looking for the person they were scheduled
to meet next.
They crowded in the lobby of the Fairmont Hotel, or in its piano bar, where some had virtually set up temporary office. If they were, like me, foolish enough to have arranged back-to-back meetings in the Hotel de Paris followed by the Fairmont, followed by the Hotel de Paris again, they had to scurry beneath the hot sun up and down the slippery path between the two hotels (The path is slippery, I was told, because it is cleaned so often).
With all this activity, how much was done in the four days? Surprisingly little business is transacted at the Rendez-Vous, said one reinsurance veteran. It is too early in the wind season to talk about January renewals. Monte Carlo is more a meet-and-greet event.
Between the cocktails, there was a lot of serious talk. The official conference was on securitisation in the insurance industry and attracted a good audience. The conclusion was that cat bonds are here to stay, but that a lot of work needs to be done to make them attractive to the wider investment community.
There was much talk elsewhere on softening rates, the effects of the credit crunch and the implications of the Aon-Benfield merger.
But, above all, the reinsurance industry is a relationship-driven industry. And nowhere do you feel that more than at the Rendez-Vous.