Reinsurers must protect their margins
Reinsurers need to protect their margins,
and prices need to reflect that in light of
recent losses, Patrick Hartigan, leader of the
treaty team at Beazley, told Baden-Baden Today.
He said that without the recent losses, the
market would still have been dealing with flat
rates. These illustrate the need for rate increases
but some clients have resisted this.
“On the basis that the margins are being
eroded to the extent where an average catastrophe
year globally would reduce the loss for reinsurance,
we have hit rock bottom,” Hartigan said.
As this has happened, the losses—which
in some instance are projected to be up
$100 billion—will have more of an effect
on the global market, which is at the bottom
of the cycle in terms of rate adequacy, he
“Part of that is due to the supply/demand
dynamic—that affects everybody because our
cost of capital will go up, along with expectations
from investors and also retrocession costs in the
form of third party capital,” he said.
Hartigan said he is seeing some pushback on
rates, particularly for clients who haven’t had
losses in a while.
“What is somehow forgotten in all this
is that there is risk price, and there is profit
margin,” he added. “The risk price has to be
taken into account, it cannot simply be added
to the balance that reinsurers have achieved.”
The profit margin, in his view, has been
eroded to the extent where it is negligible.
And from a reinsurer’s perspective, they may
question why they would offer capacity for a
“There will always be resistance; brokers
will go into negotiations on behalf of clients.
Clients will advocate that their performance
should be recognised. But the dynamics are
there that this needs to be spread among the
“The risk price has to be taken
into account, it cannot simply
be added to the balance that
reinsurers have achieved.”
“Otherwise the reinsurance market will
become less resilient and we will start to see
companies going insolvent. And that’s not a
good thing,” he added.
In this environment, Hartigan stressed that
the ability to play claims is key with each cycle.
“If you lose that financial strength through
eroding your margins too much, you have less
of an ability to pay claims,” he said. n
Disposal of legacy business can increase efficiency
Run-off specialist DARAG has seen a
significant increase in opportunities in
2017, as was foreseen in the last couple of
years, Eleni Iacovides, group chief client officer,
told Baden-Baden Today.
DARAG takes discontinued business from
insurance and reinsurance companies into its
own balance sheet—a strategy that is making
increasing sense to companies in the current
regulatory and business environment.
“Operational and capital optimisation are
two key drivers for Europe as we see it,” said
Iacovides. “That is across the board. When we
see large groups proceeding with the disposal of
non-core business and portfolios they have been
managing for years, that’s an indication of the
fact it is not just about needing to do something;
it is about strategically managing your business.”
Solvency II made capital requirements more
stringent, and regulatory reporting and duties
heavier. Both factors have contributed towards
the disposal of portfolios that are no longer
core to insurers’ operations. The continuing
low investment returns are also driving insurers
to manage capital as efficiently as possible.
“The transitional measures that offered
a buffer are coming to an end, yet another
driver for companies to review their business
requirements, to release capital where possible
and to deploy it to core business, growth,
improved results and returns for shareholders,”
“Operational and capital
optimisation are two key
drivers for Europe.”
All is “conspiring towards greater
efficiency”—and as larger players have moved
to dispose of legacy portfolios, this strategy is
seen as a decision that makes sound business
sense rather than a sign of strain or failure.
“This may be a factor to the increased
activity among smaller players to move that
way. If the big guys are doing it from a capital
and operational optimisation point of view,
the smaller players may also find it more
comfortable to recommend such steps to their
boards,” she concluded. n
18 | BADEN-BADEN TODAY | DAY 3: Wednesday October 25 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com