Smaller panels have benefited Berkshire Hathaway
The trend of buyers rationalising their reinsurance programmes—using fewer, bigger players with a broader reach—has benefited Berkshire Hathaway, Manfred Seitz, managing director of international reinsurance at Berkshire Hathaway, told Monte Carlo Today.
“As larger insurers have become ever more sophisticated in their programmes, it has meant opportunities for us because we are often a starting point for companies that want to structure these large, complex programmes,” he said.
“We are a natural partner on those. They want to work with a large, strong company with a stable capital base and a global reach. We are clearly in that top tier of reinsurers able to offer all those things. The rationalisation that has taken place has been a much bigger problem for the smaller mid-tier players. Some will inevitably miss the boat and that is partly driving consolidation.”
Seitz said Berkshire Hathaway’s position as a leader in the industry does not protect it from the wider pressures the industry is facing. Capacity is abundant and the downward pressure on rates is significant, although he added that most of its clients value the relationship over seeking lower prices.
“In Europe, we have a stable group of long-term partners as clients who value the relationship. It is not just the cheapest price that they want,” he said. “And we would never bid for business that we see as under-priced.”
He believes that although a floor has not yet been reached on pricing, some of the bigger players are starting to draw a line in the sand.
“Some of the more important market players are starting to get cautious with the downside on price,” he said. “I have started to see placements done on price alone with the bigger players not participating.”
The pressure on rates Seitz is seeing is not coming directly from alternative capital providers but from other reinsurers forced to diversify into new lines of business because they have been squeezed out of their traditional niche in cat business.
“They are diversifying into non-cat classes and rates are deteriorating as a result,” he said.
Seitz also noted that terms and conditions are coming under pressure in some areas, with hours clauses being adjusted on some classes of business in favour of the buyer and terrorism being included on some policies.
He foresees almost no circumstances under which Berkshire Hathaway would participate in the M&A frenzy in the industry at the moment. He said there is no business the reinsurer could gain that it cannot already access, but he does envisage yet more consolidation in the industry and claims the bar to becoming a tier 1 reinsurer has been raised in recent years.
“Maybe it is used be that with $2.5 billion in capital you were considered tier 1; now, I would say it is closer to $5 billion,” he said.
Yet he also noted that there are a growing number of companies aspiring to become top players in the industry, including some based in Asia including GIC Re, China Re and Korea Re.
“Getting towards being a top five player is becoming a crowded space,” he said. “There are many companies with that ambition—we could have a top tier of five with 20 companies claiming to be in it.”
