News


Any rate hikes will be gradual and smooth


interest rates, $80 billion worth of 2011 catastrophe losses and the RMS V11 model changes for Europe and the US, along with economic turmoil and the impending adoption of Solvency II, should suggest


H the drivers


towards an upward rate movement are stacking up. But any increases will be gradual and smooth and hard fought by cedants. That is the view of Jed Rhoads, executive


vice-president and chief underwriting officer at reinsurance company Alterra. “You only have to look at the backdrop of what is going on in our industry to predict what may happen at the January 1 renewals. The backdrop may not tell the full picture, but at least directionally it should tell us what’s going on,” Rhoads says. But despite the many challenges faced by the industry, he notes that many companies are still


istorically low stock valuations compared to book values, extraordinarily low


profitable and, as such, there will be no knee-jerk change. “The flip-side is that many companies will re- port a small profit this year, but that on balance the collection of facts would indicate that direc- tionally rates should not be flat to down, they should be moving up. Whether that actually oc- curs or not – who knows – but we do see a classic supply-side shrinkage and demand-side increase.” Rhoads believes the industry is in the midst


of a fragmented market cycle. Losses and price hikes in some geographical locations may not have a bearing on others. “This is even though we operate off one global balance sheet,” he says, while admitting that international cat losses may yet influence the European renewals. Many market commentators have claimed of


late that the biggest factor preventing a harden- ing of rates occurring is the fact that the industry remains overcapitalised. But Rhoads disputes


Jed Rhoads, Alterra


that this is the case. “The figures indicate that the industry has in


the first three quarters of 2011 lost about 11 per- cent of the equity it started the year with – that’s not a good fact, and we have had, ‘touch wood’, an inactive US wind season thus far! As an in- dustry, we are just one large event away from feeling under-capitalized and we need more cushion than that – it’s just too close for com- fort.” he says. “When capital is destroyed, rates should be moving upwards. If they don’t we will remain in a protracted period in which results are average and capital management becomes all the more important.”


25.10.11 TUESDAY


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Tuesday October 25 2011 | INTELLIGENT INSURER —BADEN-BADEN TODAY | 15


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