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Reactions newsletter Monte Carlo - September 10, 2007

With two category five hurricanes already on the score sheet - Felix and Dean - there will be plenty to talk about at this year's Monte Carlo Rendez-vous.

Brian McGuire, director of reinsurance broker US Re, says that the main talking point among reinsurers will be how to grow their business. "Although high investment income yields and favourable underwriting results are contributing to record operating profits and similar ROEs as those generated in 2006, the monumental challenge in the industry today is top line growth," McGuire says.

Top line growth of reinsurance premium and market share expansion is the single most important challenge facing the industry, McGuire says, as many large insurance carriers retain a greater share of their business. The expansion of the Florida Hurricane Catastrophe Fund, as a result of the insurance legislation enacted by Florida's lawmakers earlier this year, is also impacting reinsurers' business, he says. "As a result of the lack of top line growth, reinsurance companies are retaining more of their own business net in order to maintain, if not possibly show some modest growth in net premium," he told the Rendez-vous Reporter. "This is evident when one looks at the dismantling of several of the post Katrina sidecars. Without any significant change in the [premium] rating environment it's possible we could start seeing some merger and acquisition activity in the weeks and months ahead."

Sharon Gallagher, treaty reinsurance underwriter at Lloyd's-based company Kiln believes discussions will initially focus on the number of category five hurricanes missing heavily insured targets. That is before talk inevitably turns to the likely price reductions on non-loss affected catastrophe business at 1.1.08. "Which is more justified in the US than internationally," she says.

Gallagher believes Rendez-vous participants will also be airing their concerns about the impact of sub-prime mortgage problems on the stock market and hence the balance sheets of both cedants and reinsurers.

"In my opinion, people should focus a little more on floods around the world - Australia, UK, India. Along with Kyrill and a Japanese typhoon and quakes, these 'nibbles' into reinsurance programmes dilute the balancing effect of international income and hence affect people's appetite for US business too. Diversification only works if the balancing income is profitable!" she says.

Michael Handler, chief executive of reinsurance broker Guy Carpenter's continental European practice, says that a big event usually happens around the time of the Rendez-vous. In 2001 it was 9/11; in 2005 it was Katrina. "Unless we have a major event, the discussions in Monte Carlo will be a continuation of the dialogue held last year: overcapacity and resulting pricing levels.

"In my opinion there should be increased focus on capital management within risk retention, growth potential and management of the relation between growth and profitability," Handler says.

François Vilnet, chairman of APREF (Association of Reinsurance Professionals in France) and a member of senior management at PartnerRe based in Paris, says he will be mostly concerned with market noise relating to the French market.

"We see the main points of discussion relating to short term issues such as the price of cat covers and terrorism cover; the price and format of covers for bodily injury in motor business, and; the future evolution of the [state] nat cat regime," he says.

But Vilnet says he would like to see longer term issues discussed, such as the impact of climate change on cat cover structures and also the impact of European competition laws on future reinsurance products, conditions and placement.