News “If you take property business – which is


perhaps the closest to cat – there is an expecta- tion that prices will go up moderately – and we fully expect that to happen,” Matr says. “On property-per-risk excess-of-loss over the past few years, loss free programmes have experi- enced slight reductions, whilst those with losses got moderate increases. “This year, however, we predict that loss-


Karl Mayr, AXIS Re I


ndustry discussions regarding rates continue to centre around cat-related business at the


expense of some other lines that also urgently require attention,


says Karl Mayr chief


executive officer and president of AXIS Re Europe. He notes that lines such as property, motor and periodic payment orders (PPOs) should also be examined more closely.


free lines will renew flat and those that expe- rienced losses will experience more significant increases than they saw a year ago. The whole baseline will be moved up a few points. “On property pro rata I would not expect


much movement, although much will depend upon individual results. Original rates were fairly low, and I believe that we are at the bot- tom of the cycle, but the results in recent years have not been bad overall.” Mayr says his most significant concern is on


long-tail lines where dramatic declines in both interest rates and investment returns could yet create a perfect storm. In the face of such pres-


26.10.11 WEDNESDAY


Catastrophe rates are not only indicator


sures Mayr is convinced that the markets will have to adjust. Other concerns include motor and PPOs, both of which will present long- term challenges to the market, he says. Returning to property business, Mayr is


sceptical increases will arrive soon. “Until there is blood on the street there will be no fundamen- tal change to the way the industry approaches the business,” he says. “If you look at the results of European reinsurers over the last few years they have been achieving decent combined ra- tios with few problems evident in the market or on the balance sheets of individual reinsurers. “This has led to a dynamic in which reinsur-


ers stay in the market and look to keep or grow their book of business. This year might change matters. Recent cat-related losses will likely prompt a moderate improvement in rates be- cause reinsurers are simply not making the mon- ey this year. Instead they will be more cautious in deploying and pricing capacity, and this will par- ticularly be the case for large programmes that need the support of a number of reinsurers.”


Better data means fewer risk model changes in the future T


he ramifications of the changes to the risk modelling company RMS’s wind


model for both Europe and the US has been a big talking point at both Baden-Baden and Monte Carlo. However, the models are always improving and as more research is carried out and better data becomes available the likelihood of such drastic changes in the future is much diminished. That is the opinion of Dr Luzi Hitz, chief executive of Perils AG. “It’s just a question of


done now 20 years ago, we would have a huge database of historical losses and historical ex- posures and there would be little room for big model changes, because the knowledge would already be much bigger.” While model changes can have a large im-


pact on pricing, Hitz believes they should not come as a surprise to the industry. “There have been model changes in the past,” he says. “In- terestingly if a model goes down, nobody talks about it really, but if a model goes up people do


“Now we are capturing events going forward, so the more events that happen, the bigger our data becomes and greater our knowledge increases.”


time,” he says. “Now we are capturing events going forward, so the more events that happen, the bigger our data becomes and greater our knowledge increases. This means that there will be less room for drastic model changes and we will be able to narrow down the assumptions that are in the models as well. “If we had done the work which we have


talk about it. It’s not entirely fair.” Hitz also believes that because the changes


to the RMS version 11 came to the US first, that the European market had time to prepare itself for when RMS brought out its new Euro- pean wind storm model version 11. “There was already an expectation here,” he says. “I think now people are used to it. Look-


16 | INTELLIGENT INSURER —BADEN-BADEN TODAY | Wednesday October 26 2010 Dr Luzi Hitz, Perils AG


ing at this situation positively, perhaps what this episode has taught people is that models are just a tool and not something which is necessar- ily a type of Holy Grail.” According to Hitz, Perils AG’s role in the


market is to achieve greater transparency in the market. “Our mission is to provide more trans- parency as regards to cat risk,” he says. “An- other aim of ours is to facilitate liquidity in the market by providing more transparency.”


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