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18th of May 2012

Reinsurance market yet to see downturn, say experts

Vicky Beckett 24/10/2011

Predicting the reinsurance market’s upturn is premature as we are yet to see the downturn, argue industry insiders.
 
It is expected that the market will see some complex dynamics during renewals because of the unprecedented amount of alternatives to reinsurance currently available.
 
Christopher Hitchings, (pictured) senior vice-president for research at Keefe, Bruyette and Woods, said: “The fixation with when the reinsurance cyclical upturn will arrive seems somewhat premature. Judging by all of the available pricing metrics, we do not appear to have had the downturn yet.”
 
Analysts have said that the natural catastrophes seen in the first half of 2011 have helped to stop a three-year decline in reinsurance pricing.
 
On predicting the markets, Costas Miranthis, president and CEO of PartnerRe, said: “In the forthcoming renewal, we are likely to witness some very complex dynamics. While there will be demand, and there will be capital to meet that demand, I am not sure whether all of that capital will be put to work.
 
“The psychological approach to risk has changed and the number of alternatives to reinsurance that are available is something that we have not seen in the past.”
 
Frank Majors, managing principle at Nephila Capital, questioned making predictions only from rate movements, arguing there are more pressing issues that need to be considered.
 
Majors said: “Predicting price movement ignores more important questions. First, irrespective of what is happening, is the return we expect to generate sufficient for our capital base? Currently, we think the answer is ‘yes’, but each organisation will have to answer that question based on its business model.
 
“Secondly,” he added, “is the demand for risk financing being met efficiently? We don’t think so. The reinsurance industry handles many risks very well, but we see much unfulfilled demand, suggesting the industry’s basic business model is not financing peak risks very effectively.”

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