Allianz Re chief executive says reinsurer CEOs need to take a stand about unsustainably soft pricing

Continued soft pricing is fine in the short term, will lead to an unsustainable market, Allianz Re chief executive Amer Ahmed has warned.

Ahmed explained that capital providers pouring money into the sector were enabling the soft market to continue with no end in sight, serving as a backstop to heavy losses. But he said without adequate pricing, losses would chip away over time at this backstop, weakening the security and financial strength of reinsurance capital providers.

He said: “In the short term it’s okay because capital providers see reinsurance as a diversifier compared to other alternative investments they have access to, judging it to be relatively attractive.

“But in the long term I want to see sustainable pricing levels, because we need a strong reinsurance marketplace for the system to function with security and stability over time.”

Ahmed expressed concern that the hurricane losses of last year only had a muted effect on pricing, and as a result he was doubtful about when the industry could turn the soft market.

He believes the market will not react on the pricing side unless there is a major shrinkage in capacity, or sizeable loss events, which hurt the marketplace enough to force its hand.

Otherwise the flat to slight reductions in pricing seen in recent years will continue as far ahead as anybody can see, he warned.

But he said for the industry to continue footing the large bills of natural disasters, leaders will need to take a stand on pricing.

“I believe fundamentally insurance and reinsurance play a vital role in supporting economies and society and for providing that protection and resilience we need a sound base for this, Ahmed said.

“There’s got to be a reasonable expectation that there’s a return on capital generated over the medium term. My worry is that we’re currently at a level where that reasonable return is not there, and that’s not healthy.”