through the June and July renewals, material rises have only been achieved on loss impacted lines. So, for example, on particular lines where significant catastrophe losses were recorded in the first quarter, there have been large rate increases, and I would anticipate rate increases as policies come up for renewal.


“But on non-impacted lines, we are not seeing substantial rate increases.


At the start of the year, only 5 percent rate increases were reported across the board, and I think that this will be the same story going into the next renewal, assuming that there isn’t a significantly active hurricane season.”


Vickers notes that the industry is capital rich and this may dampen


hikes. This is an issue Waterman also picks up on. “There is also another underlying story, which is capital, because typically premium rates increase as capital is eroded from the market, and vice versa,” he explains. “Significant losses have been incurred in some areas this year, investment income remains under pressure, and we are not expecting significant reserve releases for reinsurers going forward, as has been seen in the past.


“These drivers would typically lead one to anticipate that premium rates


are going to increase—however I think the challenge is that the reinsurance industry remains very well capitalised and significant amounts of capital have not been taken out of the market.


Many reinsurers are reporting losses from the first half of the year, but


depending on the second-half performance, it is possible that they will break even, or even turn in a profit. So I don’t expect a significant exodus of capital, from the reinsurance sector in 2011, which again will dampen any sort of premium rate increases on the back of the significant amount of loss activity which occurred in the first half of this year.”


In terms of the nature of negotiations at the forthcoming Monte Carlo


event, no one seems to be anticipating talks to be too tough around things such as terms and conditions—certainly at this early stage. Allianz’s von Weichs says he expects to focus as much on the company’s relationships with reinsurers as market issues.


Derieux also believes discussions will be more general. He is keen to sound


out other executives on whether the high number of catastrophic losses during 2011 can be attributed to more than just chance. “2011 is the most expensive year for natural catastrophes in terms of economic losses. What this suggests is that there is a trend of acceleration of natural catastrophes, which is probably attributable to some evolution of the climate, which has been mentioned many times before. But another factor has to be taken into account, which is the increase of human constructions. It explains why when a catastrophe occurs at the same place and with the same severity, its cost is higher year after year,” he says.


Waterman believes it will depend on the balance of power between


parties. “At the moment, there isn’t a hard market, and we are expecting premium rates to only tick up modestly. Typically in a hard market, you would expect to see policy terms and conditions tightening significantly, but this is not evident yet.


“The ability of reinsurers to strengthen terms and conditions will vary


depending on the purchasing power of the cedants involved. I expect that small cedants will have less negotiating power than stronger cedants, and that could have an impact on the policy conditions at renewal. Anecdotally, we haven’t seen widespread changes in policy conditions on the back of the significant catastrophes that occurred this year.”


Vickers at Willis Re says that the main focus will be on price. “I don’t expect there to be a focus on any particular terms and conditions, and


20 | INTELLIGENT INSURER | September 2011


expect that it will be about the usual thing—price.” But he adds that some side issues such as changes to regulation rules are starting to force their way to the fore.


“There’s a whole wider game than just looking at renewals, such as the


issue around the impact of Solvency II and what that means for people buying reinsurance going forward,” he says. “Solvency II is promoting a much more holistic view of risk, and so people are beginning, as they move down in that direction, to look more closely at their reinsurance structures and what value they may be getting out of them on an overall basis.


“That does not mean, however, that people are just going to roll their


programmes over on a similar structure, but it may mean that people will look at it in a slightly different way to see if they can obtain different types of value. However, for the very big programmes, the capacity-driven ones, there might some Solvency II-related changes, but in reality, clear capacity remains a key issue.”


Waterman agrees that this will be a big issue. “I think that there are lots


of issues within Solvency II that will affect cedants’ buying strategies. Risk management is a core part of Solvency II and is very much on cedants’ radars. Therefore, I believe that


taking a more holistic look at risk is


absolutely the right thing for cedants do. “Reinsurance is an efficient capital tool, and I expect that Solvency II


is likely to result in even more reinsurance being purchased as part of insurers’ capital management strategies.”


With all this in mind, some cedants will be carefully reconsidering their


choice of reinsurance partners and the criteria they use to select them. Vickers at Willis says this is very much a subjective decision made by cedants depending on their circumstances.


IN PROFILE: ALLIANZ RE Allianz Re is the reinsurance arm of insurer Allianz. It provides


reinsurance solutions to Allianz Group companies as well as external clients. Clemens von Weichs, its chief executive, says the business buys roughly €3 billion of coverage each year, the majority of which is excess of loss protection on natural perils exposure arising out of its property, engineering, marine and motor lines of business.


The company says it seeks continuity and a holistic business


partnership with its reinsurance partners as well as a good level of security. “We use a diversified panel and are seeking to diversify further as this creates a greater flexibility for structuring programmes and ability to place in the future,” von Weichs says.


Allianz Re complements its purchase of traditional reinsurance


products with the use of coverage through capital markets instruments such as catastrophe bonds. In April this year, it closed a $40 million cat bond called Blue Fin Series 4, which protects it against US hurricane and earthquake risks. “These products complement our traditional coverage and deliver a substantial contribution for the completion of our protection landscape,” von Weichs explains.


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