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hile both insurers and reinsurers share the same goal, they also have conflicting


interests as regards how they achieve it. That is the view of Benoît des Cressonnières, chief executive of Euler Hermes Reinsurance AG who says that in these tough market conditions insurers and reinsurers will both be looking to secure their long-term profits especially as Solvency II looms. “Both insurers and reinsurers are under


in some lines of business and going down in others, such as in credit where the results have been excellent in 2010 and 2011.” For these reasons, des Cressonnières the minimum needed is for


believes that


pressure to deliver sustainable profit in a Sol- vency II environment with high return on eq- uity and reasonable dividends,” he says. “The same pressure applies to both parties, but, clearly, there are conflicts of interest in combin- ing their individual targets. Some reinsurers did not yet reach their critical mass and are putting pressure on prices to gain market share overall or in some lines of business. “In addition, there is probably too much capacity in the reinsurance market to the ben- efit of the insurers but not of the reinsurers. Therefore there is no clear direction as regards whether reinsurance pricing should be stable going forward, although it may be increasing


prices to remain stable with some increases in non-performing lines. But this excess of capacity means such changes will be difficult to implement. “The over capacity issue could be solved


by consolidation through mergers and acqui- sitions, but even if there are some discussions and rumours going on, market conditions are not favourable for the time being,” he says. There have been calls for insurers and re-


insurers to work together to bring about sus- tainable profits. However, des Cressonnières believes that this will be tricky given that their interests are not necessarily aligned. “This is really difficult to achieve since their


interests differ,” he says. “Tougher reinsurance terms are somehow difficult to include in the pricing of primary insurers and insurers are looking to lower reinsurance terms. Now, if ad-


The outlook is uncertain and bleak U


Benoît des Cressonnières, chief executive, Euler Hermes Reinsurance AG


equate reinsurance structures bring additional capital relief at lower prices than the insurers’ cost of capital (through diversification) then the interests of both the insurers and reinsurers are more aligned and efficient partnerships might be built.”


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ncertainty about global finances, coupled with heavy losses and pitiful investment returns means that there is little to smile about at the moment, says Bertrand


Romagne, general manager of the French branch of XL Re Europe. “The global environment is not looking good,” he says. “While there are not many


areas which have a bright outlook, I was surprised that it didn’t feature more heavily at Monte Carlo, with people seeming relatively happy with the situation. “The situation hasn’t really improved since then, with reinsurers struggling to make


money on the investment side, and there is a lot of uncertainty about the sovereign debt situation in Europe. Then there is the situation around losses, which is not good either. “We have had a very bad first half in terms of losses, and it is not as good as it


could’ve been in the third quarter, looking at what companies have released about losses in general. While the losses here are not major, they are still affecting the results. “Globally nothing looks very good, so we would expect the market to take those


concerns into the pricing which is taking place. There is no bright side; it might sound pessimistic, but that is the reality.” The current situation means that the industry needs to instil a sense of discipline in underwriting for profits to remain sustainable, argues Romagne. “It means that we have to be very strict on the underwriting side, and make sure


that we produce technical results. However, this is not currently the case for most re- insurers in 2011, because of the major catastrophes which affected our balance sheet and P&L.”


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Intelligent Insurer – ISSN 2041-9929


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Sustainable profits are critical for all W


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