Summary
After twenty years in the industry, the industry cycle looks to me just like it looked last time and the time before. Despite apparent changes to expertise, capital providers and products; in 2007 the reinsurance industry appears to be heading in pretty much the same direction as in previous cycles – down.
Analysis
Aviation rates off 15-20%, the upcoming important marine P&I renewals down 10%. Munich Re recently announced a 3% drop in written premiums, though they persuaded themselves, if not the market, that this was only a 2% drop in renewal pricing. Other reinsurers will follow with premium volumes and renewal pricing below expectations in 2007 in respect of underlying business. How obvious that will be depends on their ability to find new sources of premium.
Reinsurance premium shortfalls will be exacerbated by the shortfall in premium budgets after the recent Florida legislation. Underwriters looking to make up their income budgets will chase prices down again. January renewals in the US exposed property catastrophe market were already 10% off the renewing price in July 2006. Prices elsewhere in the world were significantly down, because of course we don’t need to worry about those other places at the moment.
Sure, everyone will suggest that prices are still more than adequate and of course this time will be different. It has to be if the industry is to generate returns that will enable it to compete for capital elsewhere. Oh I forgot, as long as there is no catastrophe everyone makes money anyway and the dollars just keep rolling into the industry.
January 2007 has already seen windstorm Kyrill Euro 3.5 bn. As of now the 2007 underwriting year will be worse than 2006. There is a well known insurance adage. Good years get better, bad years get worse. Some of the players will be very successful, others less so, choosing the right one gets more important, the further into the downturn we get.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
