News


Micro-cycles replace cash flow underwriting


T


he days of “cash flow underwriting” are well and truly over as reinsurers grapple


with inadequate rates on many lines of business and a difficult investment environment. Instead, the industry has entered a period of micro- cycles with different lines of business adjusting to losses and events on an individual basis. That is the view of Hans-Joachim Guen-


ther, chief underwriting officer and head of reinsurance for Europe and Asia/Pacific, for Endurance Worldwide Reinsurance, who says Endurance now tries to ignore more general trends and instead operates on a client-specific basis. The company re-established its international division in 2008 and, since them, has been busy cementing its position and educating clients in the European market. He says the business de- liberately targets the cedants it wants to work with based on some key characteristics it seeks. “We have not been back in the market that long and we don’t tend to lead on programmes


making it difficult to impose terms and condi- tions,” Guenther says. “But we are a selective underwriter. We always conduct extensive due diligence and we will accept or decline business in a way that should give us an above-average portfolio overall. “We look to work with certain cedants and


we use meetings such as Baden-Baden to help get to know those better. We especially like cli- ents who themselves are good cycle managers and who have a strong position with good ac- cess to lines of business in their own markets. As such, we don’t target particular countries or lines of business – we just look to work with quality cedants.” Guenther says Endurance is seeking long-


term relationships with clients now: it wants to be writing multi-line contracts and giving a long-term commitment to clients. But he says the challenging market conditions mean it must also look at every deal extremely carefully be- fore committing.


Global property-cat business is unprofitable I


nternational property-catastrophe excess-of- loss business, excluding Europe and the US,


is woefully underpriced and reinsurers should think carefully before committing to risks once seen by many as offering good profits as well as diversification away from the world’s biggest catastrophe risks in the industry’s core markets of the US and Europe. That is the view of Nicolas Papadopoulo, chief executive of Arch Reinsurance, who says


26.10.11 WEDNESDAY


Hans-Joachim Guenther, Endurance Worldwide Reinsurance


“We believe that from a technical point of


view we are not remunerated adequately for the tail risk we assume,” he says. “If no losses hap- pen it is fine but from a risk-based capital per- spective rates are not adequate. We are at the bottom of the cycle in terms of what is sustain- able. We expect rates to move sideways at this renewals but for many lines that is not enough.”


“If the loss ratio on the remaining $2.5 billion is calculated it would be very poor,” he says. “That is probably the case going right back to 2001, when we started, but certainly following the events of the past 18 months it is unsustainable.” He says the question in regions directly hit


by losses is how much prices need to rise to at- tract the same levels of capacity as before. But he acknowledges that such increases are being applied specifically to loss-affected areas as op-


“The loss ratio of much of this business especially following the high number of catastrophic events in the past 18 months should now be unacceptable to reinsurers.”


the loss ratio of much of this business, especial- ly following the high number of catastrophic events in the past 18 months, should now be unacceptable to reinsurers. Papadopoulo estimates that


the total an-


nual premium income taken by the industry for property-catastrophe excess-of-loss risks glob- ally, excluding the US, amounts to roughly $5 billion. About half of this stems from Europe.


posed to wider geographical regions. In the af- termath of the Chile earthquake, for example, he notes that while Chile specifically saw rate hikes, the rest of Latin America did not. Papadopoulo adds that an extra premium


should also be applied on some risks because of uncertainties over the reliability of risk models used to accurately assess risks. “It must reflect the inherent uncertainty in some of the models,”


6 | INTELLIGENT INSURER —BADEN-BADEN TODAY | Wednesday October 26 2010 Nicolas Papadopoulo, Arch Reinsurance


he says. “We have capacity to deploy but only for the right risk-adjusted premium. We have to understand what the expected loss is.” He says Arch also has concerns over the


pricing of casualty business. He notes that low interest rates make long-tail casualty business a lot less attractive as a line of business. To coun- ter this, Arch is now pricing this business based on current interest rates rather than assuming things improve going forward. But he also notes that this part of its portfolio has shrunk in recent years anyway because of persistently soft rates.


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