John Cavanagh on rates, M&A and the future
1. The 1 July renewals generally saw reinsurance rates drop again. What do you see as the future of this?
We saw a very mixed response to pricing at the June/July renewals. A number of collateralised reinsurance markets, which have recently played a major role in driving pricing in the peak zones, have shown pricing discipline by cutting capacity, and there was a significant influx of over $4bn of new Florida reinsurance capacity demand at June 1. Overall this stabilized rates, and we saw stabilisation similarly at July 1.
A number of programmes from across the market were re-priced, and this would indicate that we have found the bottom in certain market lines. Most non-cat lines globally remain competitive and we would expect continued pressure on pricing here, although it should be observed that margins are wafer thin and it is difficult to gauge at this point how far further down the market can go.
2. With increasing consolidation at the top of the reinsurance broker world, what will the reinsurance broker landscape look like in ten years’ time?
The landscape at the top of the reinsurance broker world has been broadly similar for some time, with the ‘big three’ brokers having the dominant position in the global reinsurance markets. Consolidation has been largely driven by market forces, mainly the inability of the smaller independent brokers to offer the depth of advisory and analytical services clients are now demanding.
I’m a great believer that market forces will always dictate the make-up of the industry. Clients will drive the extent to which new reinsurance brokers emerge and whether the independent sector gains strength. It is important that clients have a wide range of options.
3. How is reinsurance broker consolidation affecting the relationship with reinsurers?
Reinsurers would always prefer business through a wide spread of intermediaries; it makes them less vulnerable and less dependent on fewer distribution sources. However the natural trend has been to consolidate for the reasons mentioned above, so the market has had to learn to live with fewer, more substantial distribution outlets.
As far as Willis Re is concerned, although we’re deemed part of the ‘big three’ we are of a size where we can remain agile. We have all of the scale and analytics capabilities of our larger competitors, but we are still of a size that we can distribute these products more nimbly through our network. We have a very strong collegiate culture which has developed through organic growth rather than consolidation activity.
4. Equally, how is reinsurer consolidation affecting you?
Reinsurance consolidation is a fact of life, and we have to respond to this in a manner that offers our clients the appropriate level of syndication and choice. With the current influx of capital from new markets and alternative capital sources, now making up 15% of our market, we are comfortable with the level of choice and options available to our clients and the level of capacity available.
5. At the last Monte Carlo there was a lot of talk around public/private partnerships being part of the future of reinsurance. One year on, how do you see the future of PPPs and reinsurance?
We continue to be hopeful that this area of the market will develop. Willis Re and in particular the Willis Research Network has been particularly active in its work with the World Bank and governments worldwide to raise the profile of embedded catastrophe risk in a number of market sectors, and in particular the financial sector though our 1-in-100 initiative. Another example is the work with the Africa catastrophe risk pool, which has had a successful first year and renewed this July. We’re making progress.
6. Which part of the world do you think will be the next hotspot for your company in particular?
We see the whole world as an opportunity. Even in areas where economic growth is sluggish and insurance growth is similarly moribund, we have the opportunity to grow our market share. Willis Re has been successful in doing this within most global markets over the last decade. Our North America platform in particular has been successful in gaining market share, and we’ve also seen good organic growth in the Asian and Latin America markets. Our Specialty franchise and our particular strength in Marine, Aviation and Specialty Casualty markets present very fertile opportunities.