losses in various parts of the globe. He says that the high number of natural catastrophes, including increased earthquake activity in the ‘Ring of Fire’ and the severe storms that have hit the US in recent years must “force a reassessment” of pricing among reinsurers.
Montross notes that while the long-term average annual loss stemming
from US windstorms has been around $6.5 billion, the annual bill has exceeded $10 billion for the past three years in a row. He believes that this year, 2011, the cost could top $20 billion. He argues that rates must reflect these increased exposures. When you add in the loss of investment income and other uncertainties, the case for rates increasing becomes irresistible.
“Rates will continue to go up where either exposure has gone up,
frequency is positive or severity is increasing,” he says. “Lower interest rates and a rethink on what is a ‘risk-free rate’ will also drive rates higher. We need to get paid for the exposures we are assuming.”
Some reinsurers have cited the recent changes to RMS’s US hurricane model, which has adjusted the modelled exposure upwards, as a reason for rate hikes. But Montross dismisses this as being just one factor in the way Gen Re prices this business.
“Our assessment of the underlying exposures and any resultant changes
definitely impact our business. We sell a product that we don’t know the final cost of when we sell it. The pricing is based on estimates, and when we have better data or new information about exposures, our estimates and resultant prices change.”
But despite his tough stance on the need for rate increases and
underwriting discipline, he does not believe that negotiations at this year’s renewals will be any more difficult than usual. He believes that “good honest communication will be the critical component in any negotiation” and that “all the posturing and market banter is a sideshow”.
He argues that insurers and reinsurers instead need to concentrate upon
the real issues. “For Gen Re, an emphasis on our strong technical skills and treating our clients fairly will continue to be our way of doing business,” he says.
The Gen Re chief is also sceptical about some of the changes being imposed on the industry by external forces. He believes that the impending implementation of Solvency II and IFRS4 is creating “additional uncertainty” because they both require significant investment from the industry.
November 2011 | INTELLIGENT INSURER | 15
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54