September arrives and once again the great and the good of the reinsurance industry descend upon Monte Carlo for the Rendez-Vous de Septembre
With expectations that 2005 will see attendee numbers nudging the 4,000 mark, it is not surprising that many Monegasques choose this time of year to leave their Mediterranean hideaway in search of quieter climes.
There is little doubt as to the issues that will dominate the conversations around the tables of the Cafe de Paris, with the reinsurance industry having experienced over the past twelve months more upheaval than most sectors experience in a decade.
AROUND THE TABLES
While in previous years the names Fabian, Frances and Ivan have held sway, this year it will be Spitzer. It is perhaps somewhat easy to compare Eliot Spitzer to a category three hurricane that has torn through the heart of the broking sector before veering off towards financial reinsurance, but to say that this one-man hurricane has left a trail of devastation in his wake would be wrong. The impact of the ongoing broker investigation has certainly blown a hole in the balance sheets of Marsh, Aon and Willis in terms of both settlements and the demise of contingency fees, but the implementation of new cost-efficient structures and heightened levels of transparency can only bode well for the market as a whole. Furthermore, recent outlook revisions on the broking heavyweights are clear signs of recovery.
This is not to say that hurricanes have been pushed off the table, with the 2005 season virtually certain to be above average and the National Hurricane Center already raising concerns that there will not be enough letters in the alphabet to name each storm. While I am reticent about commenting too much on hurricane activity at this stage in the season, the fact that Dennis and Emily have already weighed in as two of the most powerful hurricanes on record for such an early point in the season is clearly a concern. It should however be noted that Mother Nature's best efforts failed in 2004 to seriously dent the balance sheets of the reinsurance market, even though collective insured losses topped those of Hurricane Andrew.
The recent bombings in London have served as a grim reminder of the ever present threat of terrorism. As the industry approaches the January renewals so it approaches the possible dismantlement of TRIA. According to the US Treasury, the act has served its purpose and extending it further in its current form would only hinder the return of capacity to the market.
However, Jason Schupp, vice president and senior assistant general counsel for Zurich, speaking recently on behalf of the American Insurance Association addressing the US House Subcommittee on Capital Markets, said, "In the real world, private markets have not rushed in to provide capital during the past two years, and financial experts do not expect them to come running to fill the void if TRIA is allowed to expire at the end of the year." He added, "I see no crowding out and have heard complaints of crowding out from no one other than from academics who theorise that because the federal government is involved there must be displacement of the private sector. We strongly believe that a continued federal role is necessary."
Any suggestions that the reinsurance sector is not entering a soft market are now gone, as there are clear signs of softening across a number of lines. However, there is an air of quiet confidence this time around that, unlike in previous turns, underwriters will be able to stave off any thirst for market share and stand firm on pricing. A combination of strict discipline, a reliance on sophisticated risk modelling and actually learning from the mistakes of the past will, it is hoped, result in a relatively benign soft market. Ironically, as Sean Mooney highlights in his article, while most might assume this would herald a time of plenty for buyers as they seek to avail of declining prices, overall reinsurance spend is expected to be down.