QBE Re will cut book further if reductions persist
Softening prices in the reinsurance market, particularly for Florida catastrophe business, are not justified despite the lack of a market-turning event so far in 2010, according to QBE Europe's managing director of reinsurance Jonathan Parry.
Parry points out that while there may not have been one major event, there has been a considerable number of losses, including windstorms in the US Midwest, earthquakes in Chile and New Zealand, windstorms in Australia, Deepwater Horizon and around $1.5bn of losses in the aviation market.
“It has not been a good year, and yet here we find ourselves, because there hasn’t been one very large catastrophe, with people talking about rate reductions,” he said. “I find it very frustrating.”
In response to a 15-percentage-point drop in Florida catastrophe business at the 1 June renewals, which Parry said “beggared belief”, QBE Re “substantially” cut its book there. “If there are going to be large price reductions in 2011 we will continue to reduce the book until we get what we think is the right pricing for the perils exposed.”
The rate reductions have been driven by a lack of events in recent years, which, given that exposures have not reduced, is “farcical”, Parry said.
Regulatory change could improve the situation, Parry believes. “I’m hoping the price benchmarking that is having to be done for both Lloyd’s and the Financial Services Authority for Solvency II will help seal a floor on catastrophe pricing in particular,” he said.
QBE expects to close its acquisition of Belgian reinsurer Secura, announced in July, on 2 November following approval from the Belgian regulator. Parry says the acquisition is a good fit because 70% of Secura’s book is long tail, while 70% of QBE Re’s book is short-tail. “The acquisition will increase our European writings, particularly on the long-tail side which is something we have been looking at doing for the past couple of years,” Parry said.