11 September 2017 Insurance

Discipline illustrates tight margins

Reinsurers have shown good discipline in the last two years, which is acknowledgement of just how tight margins have been. But the industry is also showing a growing interest in covering emerging risks, something that is necessary if the so-called protection gap is to be closed.

That is the view of Ingrid Carlou, chief executive of Patria Re, when asked about what she believes will be the main talking points at the Monte Carlo Rendez-Vous this week.

“It’s a market with little top-line growth but reasonable returns in the circumstances. But those reasonable returns can change in a hurry,” she said. “There is excess capacity, but reinsurers are more disciplined than over the last two years which is an acknowledgement that there is very little more to give.

“There is a lack of a catalyst to change the market significantly in either direction. I would hope the protection gap becomes more of a topic. The world is dramatically underinsured in respect to natural catastrophes.”

For Patria Re, Carlou said, the biggest challenges remain the macroeconomics in the Latin America region, with growth slow in many countries and crises in others. “Yet rates are still going down and deductibles are lower. As in any part of the world, there is more pressure for margins and return on equity,” she said.

“On the top of this difficult environment, our market is still in an adapting phase to the new legal framework, and Solvency II.”

She described emerging risks as more opportunity than threat, stressing that Patria Re is keen to work on new and emerging risks such as cyber while stressing that it is important to find the right partners on the primary side first.

“Cyber is a growing concern for all clients around the world regardless of company size. As disclosure obligations become increasingly mandatory, companies will seek risk transfer solutions. The insurance industry has a vital role to play in helping companies grapple with cyber risk—everything from identification to avoidance, mitigation and transfer,” she said.

“We have to be interested in developments of emerging risk in our markets—this is in our blood. But first you have to find the right horse. You have to be certain the primary carrier has the expertise and knowledge to operate successfully in a class such as cyber and the reinsurer therefore has a chance to make money.

“The primary carrier has to have skin in the game and not operate just as an agent enjoying the fruits of inflated ceding/profit commissions, while reinsurers carry the bulk of the exposure and probably the losses,” she concluded.

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