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Reinsurers face ‘real severe soft market,’ but significant amount of risk still uninsured


September 22, 2014   by Greg Meckbach, Associate Editor


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OTTAWA – There is a soft market in reinsurance, but a significant amount of risk in the world still remains uninsured, speakers suggested Monday at the National Insurance Conference of Canada.

Peter Hearn, chairman of reinsurance intermediary Willis Re Inc., said of US$140 billion in economic losses from natural disasters in 2013, only about US$36 billion of that was insured or reinsured.

Hearn, who was quoting figures from Swiss Re, made his comment while moderating a panel discussion on evolving reinsurance models.

“It would be good for the world if some of the capital would also move into some of those areas that are presently uninsured,” said Peter Röder, a member of Munich Re’s board of management who spoke on the panel at NICC. Röder is head of Munich Re’s global clients and North America division. “The capital is not moving there because they are mostly un-modeled risks. It’s not just because they are emerging countries or something like that, so that is certainly something we need to work on.”

There is also under-penetration in China, Röder suggested.

“What always amazes me, and I really do not understand it, is when we look at one of the biggest insurance markets in the world, the Chinese insurance market, it’s 90% driven by motor insurance,” Röder said during NICC. “Not that motor insurance is a bad thing, but they have considerable nat cat exposures in China, it’s not insured and it’s strange.”

Röder also alluded to flood losses that were uninsured, such as some flood losses in southern Alberta in 2013.

“In well-developed countries there are always these flood events,” Röder said. “For the insurance industry it’s embarrassing in a certain way that we are not really able to get our arms around it. Sometimes there is political influence but sometimes we are not moving far enough.”

Also speaking on the panel was Eric Smith, president and chief executive officer of Swiss Re America.

“We have all these great tools that help us have resilience as families,” Smith said of insurance that is available in the developed world. “85% of the world’s population that doesn’t have that.”

NICC, which continues Tuesday, was produced by MSA Research Inc. and held in downtown Ottawa.

“At this point in time we see a real severe soft market,” in reinsurance, Röder told NICC attendees. “This soft market actually started during the financial crisis (in 2008) and the measures that had to be taken by various central banks around the world, basically to rescue the banks. This is the reason behind the low interest rate environment. Of course that has a massive influence on the soft cycles which we are discovering and seeing at this point in time.”

Reinsurance prices in Canada are “very competitive,” Hearn said.

“It’s a good time to be a reinsurance buyer,” he added. “In the U.S. market, it is one of the few times in the primary market where the prices have held up much better than the reinsurance prices. That is a phenomenon I have only seen once before in my career.”

Hearn asked Smith and Röder how they view non-traditional capital, such as insurance-linked securities, in the reinsurance market.

Smith pointed out that Swiss Re actually developed insurance-linked securities to cover risk in Florida.

“This was a great way to bump up capacity on a temporary basis,” Smith said. “Those kinds of situations are going to continue to present themselves across the globe, and there will be a play for alternative capital at the right time, but we don’t see it as something that is going to grow into the traditional reinsurance space of a highly diversified global reinsurer.”

Röder pointed out that reinsurance is the “core market” of the reinsurers.

“We want it to be our core market in 10 or 20 years time,” Röder said. “The reinsurers are really linked to their clients, to their market….. it is the only core business that we have.”

Taking “traditional” reinsurance and “being able to pair it up with alternative capital or ILS sometimes make the best sense,” Smith said.


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