IERM Comment: Hard landing

Dear friend,

InsuranceERM will be heading to the annual Monte Carlo Rendez Vous in a few days' time, the annual gathering/jamboree for the reinsurance market which provides an opportunity to reflect on current and future trends.

Actually, one thing we can be sure of is that the meet and greet on the Cote d'Azur won't be confined to reinsurers and brokers as it once was. Nowadays the Rendez Vous presents the market in all its technicolour, with modelling agencies, academics and pension fund investors just some of the wider range of people who will all converge on this tiny European principality.

From an ERM standpoint, this is great as it provides plenty of opportunity to discuss the wider aspects of risk and risk management which probe further than a contemporary analysis of the economic state of the market.

Of course, the economic health of the market is what everyone wants to discuss. As one insurer told me, "sometimes I think that pricing is all we ever talk about."

Well, that's going to be a fairly bleak conversation. With an estimated record $570bn of capital there can be little argument that future renewals will be absolutely brutal. The estimated $100bn of catastrophe and man-made losses in 2011 managed to stave off the soft market for a couple of years but it is well and truly with us now.

And with a relatively benign catastrophe year-to-date, and, dare I say it what looks like yet another year in which a significant land-falling hurricane has not battered the US, the soft market will be with us for some time yet.

I can't see much changing quickly. Interest rate rises will I'm sure take some of the wind out of the ILS sails, but that will take some time.

For the time being we rely on the gumption of senior management to realise that chasing market share in 2014 and 2015 could end in tears, with the prospect of combined ratios crossing the 100% threshold for the first time in years.

Somehow, though, experience persuades me I'm not altogether sure that reinsurers will have the self-discipline to pull back where it matters. Regulators take note.

Marcus Alcock,

Editor, InsuranceERM

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