Interview: Tony Weller, Citadel Risk


Commoditisation means A


s parts of the reinsurance industry become increasingly commoditised and more


players seek scale over specialty, an increasing number of opportunities are emerging at the smaller end of the market—something that Bermuda-basedreinsurer Citadel Risk is able to take full advantage of. Tony Weller, group chief executive of


Citadel Risk, believes that despite there being a surplus of capacity in the industry as a whole, much of this is concentrated around certain types of perils and the large risks. In other parts of the market, there is a deficit of capacity. “For us, as a small player, this means there


are a lot of niche deals we see without much competition


for them—the bigger players


would not look at them because they would see them as either too specialist or too small. “Those are the sorts of risks we like—those


which may be difficult in some way or hard to place. We are willing to look at programmes


niche opportunities Despite over-capacity in the reinsurance industry, much of this business is chasing increasingly commoditised business, leaving gaps and opportunities for smaller, niche, players, as Tony Weller from Citadel Risk tells Baden-Baden Today.


that others are not and that has yielded some great business for us.” By way of an example, Weller says that there


are occasions when the industry will not touch deals in certain countries because of a wider economic or political crisis. Citadel, however, will consider each deal on its own merit. “During the economic crisis in Greece, no-


one would touch that country. But we were approached and did some small and yet very profitable programmes . We are a small carrier but with an A- rating—that means we can take opportunities others cannot.” Another advantage of this strategy, he


notes, is the diversity it lends the company. The reinsurer never ends up with a disproportionate amount of exposure to one peril or type of risk. He also stresses the


willingness of the


company to conduct independent research to help establish the insurability of certain risks, rather than simply relying on actuarial reports. He gives an example of a large number


More ratings downgrades forecast H


aving attracted alternative capital with its potential


for healthy returns in a


low interest rate environment, the insurance industry is now facing the resulting challenge of declining prices and narrower profit margins. This has been reflected in Standard & Poor’s


(S&P) recent downgrading of its outlook for Lloyd’s from positive to stable—and further negative actions and downgrades are likely. That is the view of Ralf Bender, senior director, Financial Services Ratings, and Johannes Bender, associate director, Financial Services Ratings, at S&P, speaking to Baden-Baden Today. “We anticipate that around half of the rated reinsurance companies will become more


21.10.14 TUESDAY


Tony Weller


of US cattle yards the company writes a reinsurance policy to protect. While there was little actuarial data around the risk, the company did its own research using sources such as academic data and veterinary studies, to make an informed decision on what has to date proved to be a profitable book of business. Weller said that as much of the industry


seeks size and scale, a growing gap is emerging between the biggest players and smaller niche players. The same is true in terms of brokers, with the biggest players interested only in placing business over a certain size. “The


industry is becoming more


commoditised and driven by scale. But that is just opening up opportunities for us. If we can take a £50K premium and there is no claim, that is great business for us but not everyone wants it.” n


Tony Weller is group chief executive of Citadel Risk. He can be contacted at: tony.weller@citadelrisk.com


affected by the current pricing pressure, and for these companies there is the potential that we will make adjustments downwards with regard to certain rating factors or in their overall rating,” said Johannes Bender. In particular, he predicts that companies


that are less diversified and more focused on price-sensitive lines of business will face the greatest challenge to withstand the current environment. While the ratings of most of these companies will probably stay unchanged for 2014, the pressure is likely to show by 2016. “A decline in earnings may not immediately affect ratings because companies still have very


10 | BADEN-BADEN TODAY | DAY 2: Tuesday October 21 2014


strong capital positions, often meaning they don’t need earnings to defend their current rating levels. “However, our assumption is that if prices


go down and you write pretty much the same amount of risk, you will have less premium for that risk, so it will take down the profitability at some point,” said Johannes Bender. S&P expects that the pressure on pricing will


continue, especially as private equity investors start reinsurance businesses. Ralf Bender said that the extra capacity is here for the long haul. “We would not expect that there will be a


stop to this influx of alternative capital at any time,” he said. “As interest rates improve or these investors suffer some losses there might be some reductions in the alternative capacity but we think it’s here to stay.” n


www.intelligentinsurer.com | www.bermudareinsurancemagazine.com


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