global reinsurance monte carlo daily - day one

E L L E N

‘Sovereign debt is a just sideshow for reinsurers’

T O N I G H T

P a g e 7

B E N L A U R E N D A N N Y

Email: [email protected]

Follow: @GlobalReins

Call: +44 7872 511244

Devaluation of government bonds in peripheral European economies is little more than a minor distraction for global reinsurers, says one analyst.

“From my point of view, the sovereign debt issue from a reinsurance perspective is entirely a sideshow,” Pricewa-terhouseCoopers European insurance market reporting leader James Quin says.

There have been some con-cerns that devaluations, down-grades or defaults in periph-eral eurozone economies such as Greece, Italy, Portugal, Ireland and Spain could hit the balance sheets of reinsurers, as the bulk of their investment portfolios are made up of government bonds.

But Quin, a former Citi

analyst, says: “The direct expo-sure to peripheral eurozone sovereign debt is extremely small. Munich Re has a little bit more than most but that’s because it has a primary life business, and even there the risks are relatively small because policyholders take most of the investment risk. I wouldn’t say it is irrelevant but it’s not far off .”

Sovereign debt crises in European cities like Greece will not hit reinsurer balance sheets as some expected

GLOBAL REINSURANCE MAGAZINE

T A L K T O U S

How the industry has changed ten years onRemembering 9/11

E I N S U R A N C E C O MG L O B A L R E I N S U R A N C E

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Will it be you spotted drinking coff ee or

sipping champagne in Monty’s diary

tomorrow?

RENDEZ-Vous

MONTE CARLO 2011 FROM GLOBAL REINSURANCE MAGAZINEG L O B A L R E I N S U R A N C E . C O M

DAY ONE

“Cats, cats and more cats is going to be the headline going into Monte Carlo”Theresa Schugel, BMS’s head of global specialty casualty

“Those first dollars that flowed after 9/11 were not government dollars, they were insurance dollars”Gregory Serio, Park Strategies

SPONSORED BY

‘In many ways, the insurance industry stepped

up in the wake of the tragic events of 9/11’

Ellen Bennett, editor-in-chief

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GR DAILY day 1.indd 1GR DAILY day 1.indd 1 11/09/2011 11:24:2111/09/2011 11:24:21

RENDEZ-VOUS www.globalreinsureance.com2 M O N T E C A R L O 2 0 1 1

M O N T E

C A R L O

‘With a big event like Christchurch, there are a lot of people that become real experts on geology by the bottom of the fi rst pint and that’s no way to progress’ Gerry Brownlee, Canterbury earthquake recovery minister PAGE 6

WHAT NOT TO MISS TONIGHT AND WHAT TO AVOID PAGE 7

1 Casino de Monte Carlo

2 Hotel Hermitage

3 Hotel de Paris

4 Fairmont Monte- Carlo

5 Hotel Metropole Monte-Carlo

6 Port Palace Hotel

7 Eglise Sainte Devote

8 Gare de Monaco

I N S I D E . . .

Liberty’s Dieter Winkel thinks ultimate net loss retro is the way forward

PAGE 3

US states relax collateral rules for foreign reinsurersPAGE 4

Will catastrophe model update leave its mark on

pricing? Chaucer’s Bruce Bartell thinks so

PAGE 6

COMMENTREAD MORE

STAY INFORMED www.grdaily.com

[email protected]

Follow: @GlobalReins Call: +44 7872 511244

How the industry has changed ten years onRemembering 9/11

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GLOBAL REINSURANCE MAGAZINEis published 10 times a year byNewsquest Specialist Media Ltd30 Cannon Street, London, EC4M

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RENDEZ-VOUS 3M O N T E C A R L O 2 0 1 1

Retro cover should be individualised

B Y L A U R E N G O W [email protected]

Individualising retrocession cover will make it more appealing to buyers, accord-ing to Liberty Syndicates head of reinsurance Dieter Winkel.

Winkel said retrocession cover is diffi cult to write and change, particularly when rates move up dramatically leaving retro buyers with fewer buying options. “You can’t go from 35% to 50% rate on line and expect buy-ers to stay on board. I don’t believe people will buy at those rates,” said Winkel.

But Winkel believes there is a solution. “One option is to move retro towards a prod-uct that covers individual peak territories or separate pillars for US and interna-tional exposures, rather than providing worldwide.”

Winkel also said that unlike catastrophe bonds and insur-ance loss warranties (ILW), ultimate net loss retrocession (UNL) provides much broader coverage. “To my mind, this is preferable to a situation where geographically diverse com-panies are limiting the amount of back up they have.”

In 2011, following the impact of severe catastrophes, some reinsurers have run out of coverage, meaning addi-tional back up has been needed. But the battle to weigh coverage against cost has been a constant stress for reinsurers, according to Winkel.

Winkel added: “1 January renewals will be interesting as many clients perceive ILWs to be cheaper. But there are advantages to UNL coverage over ILW coverage. ILWs are often single-shot policies with restricted perils and territorial scope, so you get less for less.”

B Y L A U R E N G O W [email protected]

Catastrophe modelling fi rm AIR Worldwide has entered into a partnership with Trillium Software. AIR said the partnership will provide more precise geocoding, through the integration of Trillium’s geo-spatial software with its catas-trophe modelling application.

The integrated software is expected to help AIR World-wide’s clients improve risk geocoding and catastrophe risk analyses for perils such as wind, fl ood, and earthquake outside the USA.

M A T C H O F T H E D A Y

Delegates taking part in the annual Rendez-Vous de Septembre regatta faced an anxious wait this morning as the race looked set

for a false start due to a lack of one crucial element – wind. As competing crews gathered for their briefi ng down at the Yacht

Club of Monaco it looked like an early victory for Mother Nature as she off ered little sign of blowing a breeze for the action to get under

way in the bay. With defeat on the cards for the 15 four-man boats, it was

looking increasingly likely they would need to fi nd another wayto settle old scores or hope that they could make an extremely late come back in what was turning in to the fi rst big match of

the day.

MOTHER NATURE 1, RVS REGATTA 0

Mother Nature vs RVS Regatta

AIR to partner up with Trillium

Liberty Syndi-cates’ Dieter Winkel believes UNL retro could help reinsurers in the battle of coverage versus cost

$445bn The estimated total

global reinsurer capital as of 30 June 2011, according to

Aon Benfi eld

£50m The amount racing

drivers at the front of the grid can buy cover for

10 ATOMIC BOMBS Every second, a large

hurricane releases the equivalent amount of energy

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P I C T U R E S

Coffee, a map and reinsurance – what more could you want in life?

Rendez-Vous regatta yachts re-main docked due to unfavourable

conditions

www.grdaily.com

Rising rates make buying retro very diffi cultUltimate net loss gives broader coverage

S A Y W H A T ?

“If you liken the uncertainty swirling around the market to a hurricane, the eye of that storm, we believe, may have settled over Europe”Nick Frankland, chief exec of EMEA operations, Guy Carpenter



Lower collateral require-ments should bring more reinsurance cover to capacity-constrained markets.

Encouraged by new legis-lation, a number of states in the USA have relaxed or are in the process of relaxing their collateral rules for foreign reinsurance companies. Title V of the Dodd-Frank Act – also known as the Non-admit-ted and Reinsurance Reform Act 2010 (NRRA) – makes it clear that it is the cedant’s home state that decides credit for reinsurance.

While the act does not seek to reduce the 100% collateral rules that exist in many states, it has opened the door for indi-

vidual state regulators to mod-ify their terms. So far, Florida, Indiana, New Jersey and New York have relaxed their rules for unauthorised reinsurers’ collateral requirements and others are expected to follow.

Florida was the fi rst state to allow lower capital require-ments for foreign reinsurers that are highly rated and fi nancially stable. This poten-tially attracts further reinsur-ance capacity to the hurricane-prone state, making it less of a capital burden for interna-tional carriers. Hanover Re, XL Re, Ace Tempest Re, Hiscox Insurance and Partner Re have all been granted lower collateral in the state.

“That provision of Dodd-Frank does increase available capacity at least marginally,” says Insurance Information Institute president Robert Hartwig. “That’s important to some of the more catastrophe-prone markets like Florida. The impact is small but in a capacity-constrained market like Florida it’s important.”

In July 2011, Lloyd’s received approval from the New York Insurance Depart-ment to post reduced collat-eral (to 20% from 100%) on reinsurance contracts with New York-domiciled cedants.

Currently, Illinois, Texas and Louisiana have bills pending that will see them reform their collateral rules along similar lines.

4STATES

have so far relaxed their collateral rules

5REINSURERS

have been granted lower collateral status in Florida

20%COLLATERAL

approved by New York Insurance Department

M A R K E T V I E W

F R O M Q F C A

Why Qatar makes good global sense

Companies involved in large capital projects in the GCC are looking for more eff ective risk management

strategies, exploring alternative risk transfer mechanisms such as cap-tives. Further afi eld, an increasing focus on risk management among

fi rms in Asia has led to more evaluat-ing where to domicile a captive.

A key step of Qatar’s captive hub strategy has been to set up a reliable

regulatory environment. The QFC Regulatory Authority has released

the Captive Insurance Business Rules 2011 and Insurance Mediation Business Rules 2011 (IMEB), which set out a regime for asset manage-ment in the Qatar Financial Centre.

The regime introduces a class 4 captive that allows for innovative structures outside classes 1 to 3.

Other changes include the adoption of a minimum capital requirement

focusing on a risk-based model, customising the approved individual

process, reducing application and annual fees, and allowing foreign captives to re-domicile to the QFC.

The QFCRA’s new rulebook, IMEB, aims to re-classify intermediaries’ and captive managers’ activities

more clearly. Provisions have been made to diff erentiate insurance

mediation and captive insurance management and to simplify capital

requirements.

Moreover, the rules clarify that group policies are allowed, if they give authorised fi rms the sole benefi t of the minimum indemnity levels required by the QFC, while lower

reporting and fee requirements will apply to captive managers.

The regime provides a strong foundation for a captive and

reinsurance market in Qatar, which clearly benefi ts from its proximity to

Europe, Asia and Africa. More and more companies in the GCC and MENA region are looking at

using the QFC framework to set up captive insurers.

C A P T I V E R E G U L AT I O N S

Pioneer US states lower collateral requirements

U S R E G U L A T I O N

Who has relaxed their collateral rules?

Catastrophe-prone states like Florida benefi tLloyd’s makes 80% cut for New York cedants

www.grdaily.com

Florida

New York

New Jersey

Indiana

TexasLouisiana

Reformed collateral rules

Reform bills pending

Illinois



As the industry descends on Monte Carlo today for the

biggest event in its calendar, many people will be remembering the Rendez-Vous of 2001.

It’s hard to believe it’s a decade since 9/11, and to realise how much has changed since then.

Aon and Marsh both had offi ces in the World Trade Center and hundreds of their workers’ lives were lost. Most

risk and contract certainty.In many ways, the

insurance industry stepped up in the wake of the tragic events. It honoured its commitments and was seen in a better light, both by its policyholders and by the US government. Barriers were broken down and communi-cation improved.

The industry also faced up to the scale of the new threats out there and tightened up policy wordings

“The industry stepped up in the wake of 9/11”

and exclusions as a result.The industry can never be

ready for another event on the scale of 9/11; and let’s hope it will never have to. Global security is on high alert today and delegates at the Rendez-Vous, like the rest of the world, will be looking back to the tragic events of 10 years ago and learning from them what they can.

[email protected]

people in reinsurance lost friends and colleagues that day and they will be in their minds today, as ever.

Today is also an opportu-nity to refl ect on how that event – unimaginable before it happened – changed the world’s perception of risk and the business of insur-ance forever. The aftershocks are still being felt, in the disputes over the rebuilding of the WTC as well as in the defi nitions of terrorism

E LL E N

B E N N E T T

B Y B E N D YS O N [email protected]

Catastrophe risk models have too much infl uence in the reinsurance marketplace and need to be put back in their place, according to Guy Carpenter’s chief executive of global analytics and advisory, Bill Kennedy.

Speaking at a press confer-ence at the Monte Carlo Rendez-Vous yesterday, Ken-nedy said that although recent changes to vendor catastrophe models were not the most disruptive event in the market over the past 12 months, he expected the changes to be disruptive during the 2012 renewal process.

“Cat model infl uence is a bit like the tail wagging the dog,” Kennedy said. “We the industry need to put these models back where they belong – as one of a number of

Guy Carp: Cat models have too much infl uence

Changes will be disruptive during renewals Cat models are a ‘highly imperfect science’

risk management tools pro-viding insurers with a better understanding of their risk on a relative, not an absolute, basis.”

Kennedy said it was impor-tant to understand the levels of uncertainty inherent in all models. “To be clear, we believe these models are very useful in assessing risk expo-sures. It is no surprise they have become essential tools for any insurer underwriting catastrophe loss coverage.

“However, these models refl ect a highly imperfect science, and they carry levels of uncertainty far greater than their infl uence would suggest.”

Kennedy also called for greater transparency into the models’ workings and assumptions. “Model vendors cannot expect to be partners within the insurance industry if they are regularly produc-ing and introducing opaque tools.”

www.grdaily.com

“Cat model infl uence is a bit like the tail wagging the dog. We the industry need to put these models back where they belong.”Bill Kennedy, Guy Carpenter

S A Y W H A T ?

“The market is adrift, directionless. There is very little indication and virtually no conviction of the market’s next move. Why is the market adrift? Uncertainty has run rampant. In my 30 years in the business I have rarely seen a market so riddled with it.” Alex Moczarski, president and chief executive, Guy Carpenter

“While I respect analysts, they don’t always appreciate how long it takes for price increases and other remedial actions to work their way through the portfolio.”Mike Wilkins, chief executive, Insurance Australia Group



The big infl uence on pricing this year, beyond natural catastrophe claims, is a catas-trophe model update.

The infl uence of major natural catastrophes in the fi rst half of the year on rein-surance pricing has so far mainly been contained to those regions that have experienced claims.

In New Zealand in particu-lar – following the second Christchurch earthquake in February – price rises of more than 150% have been experi-enced, while elsewhere more modest rate hikes of between 5% and 20% are more typical.

But New Zealand is a clear outlier, according to Swiss Re head of division globals and member of the group management board Thierry Léger.

“I expect a number of reinsurers have withdrawn capacity from that market, but the issue is that really big and companies are potentially thinking about splitting New Zealand cat from Australian cat to get

the prices right,” he says.Beyond catastrophes, the

biggest single driver of property catastrophe pricing in 2011 is changes to the vendor catastrophe models. The update that has had the biggest impact is RMS ver-sion 11 for US wind, which reveals higher exposures for areas inland from the

coast than had previously been the case.

“RMS 11 will cause people to look carefully at retention levels and, where they’ve experienced frequency, there will be a combination of retention level correction and price movement,” says Chaucer chief underwriting offi cer Bruce Bartell.

The impact is still being assessed, but for many insur-ers and reinsurers it means a higher probable maximum loss, assuming that they use RMS models to assess their exposures.

These carriers have a choice: either they hold more capital to maintain the same book of business, buy more reinsurance to transfer some of the risk and maintain capi-tal levels, write less business or rely less on RMS model outcomes.

“I’m quite sure there’s a lot of time being spent by ced-ants and reinsurers at the moment looking at develop-ing their own catastrophe models using a blend of externally provided models,” says Bartell. “I’m sure that will happen more in 2012.”

Major events this year contained in regionsRMS 11 sparks fresh look at retention levels

P R I C I N G

THIERRY LÉGER, SWISS RE“These model changes are a catalyst – but insurance companies are smart – they know they cannot just rely on

RMS.”

BRUCE BARTELL, CHAUCER“The eff ects of version 11 have been

felt right the way through the curve so that’s certainly going to put upward

pressure on pricing.”

T H E F E N C E

VS

What eff ect will the RMS updates have?

THE BIG SMOKEThe world’s largest cigar

was insured for just under £18,000

Measuring 12.5ft long and weighing 110kg, the cigar was insured for its retail value, but

for a premium of just 50p. It took 315 hours to make and would take one person 339 days and

nights of uninterrupted smoking to conquer

THERE BE MONSTERSBack in 1974, Cutty Sark

Whisky off ered a £1m prize for the capture of the

Loch Ness monster

But insured itself against the possibility of actually

having to pay out the prize money. The policy stipulated that it should be brought to London and identifi ed by a

qualifi ed zoologist

RED CARPET COVERLloyd’s provides

cover against the Academy Awards being cancelled

This can be for anything from terrorist threat to fi re.

In 2004, Lloyd’s insured the £27m worth of jewellery

worn by the stars at the Oscars.

Cat modelling adds to pricing pressure

‘There’s a lot of time being spent by cedants and reinsurers looking at developing their own cat models’Bruce Bartell, Chaucer

www.grdaily.com

B Y B E N D YS O N [email protected]

The New Zealand government is aim-ing to dispel myths about earthquake risks in the country and ensure reinsur-ers are using the correct data when pricing risks there.

“We want actuarial calculations to be based on good information and not some of the speculative stuff that runs around at times like this,” earthquake recovery minister for the New Zealand region of Canterbury Gerry Brownlee says. “It is understandable that with a big event like this, there are a lot of peo-ple that become real experts on geology by the bottom of the fi rst pint and that’s no way to progress.”

Brownlee is part of a New Zealand delegation that met with Lloyd’s on Friday and will also be making an appearance at this year’s Rendez-Vous in Monte Carlo.

The delegation includes represent-atives from the New Zealand Reserve Bank, the Treasury, the government’s Geological and Nuclear Science agency, and the Department of Build-ing and Housing. It aims to help the reinsurers understand the Christch-urch earthquakes, how the govern-ment is responding and how these actions will help reinsurers quantify the risk in the future.

Christchurch: more data, less of the speculation

Gerry Brownlee dispels the myths surrounding Christchurch risks



“If it rains, like it did last year, don’t run. You will defi nitely

slip. And people will remember”

Welcome to Monte Carlo, which, as you know, is my favourite time of year. I’m already down here and nicely settled, having a few drinks and eyeing up the

very nice sports cars.

As you ease yourself into the premier event on the reinsurance calendar, I

thought you might like to hear some top tips from a man who knows what he’s

taking about – moi.

Watch out for people wearing full suits during the day instead of the

traditional, more relaxed, Monte Carlo attire. They’re either newbies or they

need to save face for some reason.

Be wary of reinsurers holding meetings on yachts – they may be trying to hide

something under the wow factor.

If it rains, like it did last year, don’t run. You will defi nitely slip. And people will

remember.

If you do get so drunk that you fall asleep in a public place, make

sure your name badge isn’t showing …

M O N T Y ’ S

R E N D E Z - V O U S

G O T O … There’s only one place to see and be seen tonight – the annual Guy Carpenter cocktail party that kicks off the whole shebang. Get your glad rags on, your shades in place, invite at the ready and head down to the Hotel de Paris.

S E E …The casino. It would be rude not to.

D R I N K … An ice cold cocktail. Come on, you’re in Monaco – a lager’s just not going to cut it. A V O I D … The Cafe de Paris, if you possibly can. With hordes of insurance folk meeting here or in the vicinity, the only thing you’re likely to get is lost.

T O N I G H T

S E N D Y O U R P I C S

A N D Q U O T E S T O . . .

[email protected]

The fi rst of the meeting delegates, ‘working hard’ at

Cafe de Paris

Watch this space for your face tomorrow!

I wonder how much that

parking space cost?

Plans for the offi cial regatta dried up – no wind, no race!


global reinsurance monte carlo daily - day one

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