12 September 2016 Insurance

Challenging Q2 results to drive change in negotiations

The reasons underpinning challenging results for many reinsurers in the second quarter of 2016 will be a major talking point at the Monte Carlo Rendez-Vous this year, as executives discuss how the industry might respond.

That is the view of Moses Ojeisekhoba, the new CEO of the reinsurance business unit at Swiss Re. He believes that a prolonged period of low claims and reserve releases has somewhat masked the true extent to which ever-softening rates will hit the industry’s profitability.

After a period of heavier catastrophe losses and as reserve releases will follow the loss pattern, Ojeisekhoba feels that some companies will be brought back to reality with a bump and many underwriters will be looking to act.

“Reality will start setting in now after the Q2 results, and that is even without other losses that may start to emerge during the rest of the year,” Ojeisekhoba said. “We have already seen an element of discipline emerge in pricing, but this will reinforce the fact that change is needed and pricing needs to edge towards more sustainable levels.

“Rate reductions are slowing in the industry but the fact is that, especially in light of recent losses, many rates are simply not viable.”

This picture is sharpened by the continued low interest rate environment, likely to be elongated further with the Bank of England’s measures to avoid a recession in the aftermath of the UK’s surprise vote to exit the European Union, which included a cut in interest rates, he added.

This means that decent investment returns will remain hard to come by, keeping underwriting profitability in the spotlight.

Ojeisekhoba believes the full implications of the Brexit vote remain hard to predict. He feels there will be an economic impact, which could lead to slower than anticipated growth for some parts of the UK insurance industry.

There will also be some transition risk, partly thanks to the depreciation of the value of sterling, and Swiss Re will have to work to match assets and liabilities.

“The overall impact may well not be clear for a year or more,” he said.

“There will be some impact on the economy and that will clearly affect insurance, but for the most part we will just have to wait and see.”

He added that the negotiations around the terms of the UK’s exit from the EU will be very important and the re/insurance sector must ensure its needs are accounted for in that process.

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