16 July 2013 Reinsurance

In change lies opportunity

In Spanish, there is a very old saying: A rio revuelto, ganancia de pescadores. Loosely translated, it means “murky waters are full of fish”. And this neat, somewhat quaint, analogy is how Ingrid Carlou, the chief executive of Patria Re, defines both the state of the reinsurance markets and the opportunities that exist for players with the right strategies right now.

As CEO since 2012, Carlou has already overseen a number of strategic firsts for the company, many of which were started well before her own reign but which she is responsible for seeing to fruition.

But at the heart of the changes the company is experiencing there lies the dual challenge of keeping pace with what she acknowledges is a rapidly changing industry while also ensuring the company—celebrating its 60th year in 2013—is well positioned to take full advantage of some of the opportunities that could emerge as a result.

“For Patria Re, the biggest challenge is not different from what the industry is experiencing,” Carlou says. “After years of approaching the risk with a fundamental focus, the use of mathematical, technical and CAT pricing models together with ERM have crashed in. It is similar to the way the Industrial Revolution once hit society, changing things fundamentally.”

Carlou says the challenge for all reinsurers is to keep pace with these adjustments—and she acknowledges that this does not come easily to all underwriters.

“Some of the more senior underwriters understood this change and incorporated the new practices into their underwriting activity,” she says.

“We went from complementing our traditional technical analysis with the impact on the capital and financial margins to developing an economic model for our clients.

“This represented a huge transition. Furthermore, achieving a good equilibrium between fundamental and technical analysis is not something given to everyone. This means you have some people stuck to the old approach and others who think the new approach is the only good way to go forward. Only the sharpest underwriters, the ones with a high sensitivity to risk, will become truly good and help maintain Patria as a provider of tailor-made services that have an impact on all the value chain.”

60 years young

Patria Re is celebrating its diamond anniversary this year—but that is only one of several landmarks the company has marked recently. On the back of solid growth and international expansion, Carlou says, the company has had several reason to celebrate this year.

First, Patria Re is being incorporated into a group of ventures operating under a single holding structure. This change will allow compliance and governance responsibilities to be run centrally, allowing the various operational units to concentrate on strategy and marketing. “This will open up the possibility to exploit economies of scale and to create synergies among a larger pool of talents. It also gives us more financial flexibility,” Carlou says.

Second, in another significant landmark, the company is in the process to open a new reinsurance carrier outside its headquarters of Mexico with the fundamental purpose of hedging sovereign risk. “This not only means the company will become truly a Latin American venture but it will also be a fundamental step in the development of our international portfolio,” Carlou explains.

Third, partly on the back of some of its other strategic moves, the business’s international insurance financial strength rating has also been upgraded by Fitch Ratings to A- with Outlook Stable from BBB+. Fitch also affirmed Reaseguradora Patria’s National Scale IFS rating at AAA(mex), Outlook Stable.

Interestingly, Carlou is somewhat cool on the true significance of this, noting that a rating is simply an opinion. She prefers to focus the reality of the customer experience.

“The rating is more important to some clients and some regulatory bodies than for Patria. The fundamental question here is should one strive to achieve a good rating or should one strive to do a good job? The rating is only an opinion on how this is reflected,” she says.

“I do not mean to say that image is irrelevant. Image and reputation certainly bring with them sin of idolatry. That is something which this world tends to forget.”

Finally, she admits that as well as some substantive achievements on the corporate front, the business has marked its birthday in other ways. “We have thrown some really good parties where we could all remember there are more important things in life than financial margins,” she says.

Opportunities abound

These specific recent achievements and landmarks mark the recent fruition of fundamental changes the company has been going through for some time. Carlou notes that a new long-term business plan was established some years ago—and that she is just the latest guardian of this strategy and these changes.

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