Top reinsurers to lead push-back on pricing: SCOR
Because of existing earnings pressure due to a soft market and low interest rates, all major reinsurers will shed business if there are further rate decreases in the upcoming renewals season, Benjamin Gentsch, deputy chief executive officer, SCOR, told Monte Carlo Today.
“I don’t think any reinsurer can afford to reduce prices significantly,” Gentsch, said.
“A well-diversified top reinsurer with a similar portfolio to ours is not able to offer significant price discounts. The profitability is the same as ours—we by and large participate on a syndicated basis at the same terms and conditions and prices,” he said.
He believes that many of SCOR’s peers see the situation in pretty much the same way. “I can only assume that they talk with similar words and use similar arguments with clients,” he said.
This dynamic, whereby some of the bigger players are drawing a line in the sand, may help support pricing in the upcoming renewals season.
“If enough of our peers share the same view, the client will ultimately say: ‘I have to pay more’. Therefore, they pay more,” Gentsch said.
“I don’t think you’ll find a large, global, diversified reinsurer with much better underlying profitability than we have. As such, I can’t see them any more able and willing to offer price reductions,” he said.
In the upcoming renewals season, Gentsch argues that what has been a fairly active catastrophe season, particularly in the second quarter, combined with other manmade losses should help keep pricing at least stable. But it is not guaranteed that he will succeed, he admits.
“It’s a rational market behaviour of the client to try to avoid paying more. If the client finds enough support for placing the business, we will not be successful with our push,” he said.
Reinsurers are facing significant pressure. As reinsurers’ earnings are being squeezed, the sector is also becoming more vulnerable.
“The normalised return on equity is now roughly 3 percent for the industry. Ten years ago it was 15 percent. If you have a recurrence of hurricanes Katrina, Rita or Wilma, more than two years of global earnings of the entire reinsurance industry could be wiped out,” Gentsch said.
While committed to its broker relationships, SCOR is also developing a closer dialogue with some clients. It has started to present directly to insurers when discussing solutions that require a lot of capital management, said Victor Peignet, chief executive officer of SCOR Global P&C.
“They want direct relationships with the few reinsurers that have the capabilities to help them analyse the situation and find solutions,” Peignet said.
He added that brokers and reinsurers can work in parallel with the client.
“The role and the relationship is no longer a chain of client-broker-reinsurer—it’s a working group. There are direct discussions; we are presenting to our clients in the same way that brokers do,” he said.
