RELE ASE Special Edition 2012 | Catlin Re Switzerland 01
Special Edition 2012 — Bulletin of Catlin Re Switzerland
The Catlin Spring Event – a review
02 RELE ASE  Special Edition 2012 | Catlin Re Switzerland
Editorial Dear Readers On 31 May we celebrated our first Catlin Spring Event in Zurich. The get-together with clients and business partners proved to be a great success. Some 120 people attended the afternoon conference at the Park Hyatt Hotel, with over 160 guests joining us later that evening for a celebration at our offices. I would like to take this opportunity to express our gratitude to everybody who joined us for our Spring Event. We all felt very much inspired by the many interesting conversations we had at the event and hugely enjoyed your company. Our afternoon conference examined the current issues facing the insurance industry. The presentations and more pictures are available at www.catlinreswitzerland.com. The keynote speech on balancing opportunities, risk and uncertainties in our industry was delivered by John H. Fitzpatrick, who was recently appointed Secretary General and Managing Director of the Geneva Association, the think tank of the insurance industry. His presentation was followed by a panel discussion on the outlook for the European insurance industry with senior executives from EIOPA, Zurich Insurance Group, Aon Benfield and Catlin Re. Once again, the Catlin team would like to wholeheartedly thank everybody for joining us at our Catlin Spring Event. We are looking forward meeting you again in the hopefully not too distant future. Yours
Peter Schmidt CEO, Catlin Re Switzerland
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Resolving a paradox: The value of a mid-sized reinsurer In recent years the Continental European reinsurance market has witnessed over-capacity, declining prices and low profitability. Still, roughly 30 reinsurers have been established in Zurich in the last eight years, mostly targeting the Continental European markets.
Originating predominantly from Bermuda and the United Kingdom, the newcomers were motivated by strategic considerations such as accessing a market place with distinctly different features and client attitudes. They aimed to move closer to their clients, and many chose Zurich as their base for its access to expertise and talent, reliable regulation and its quality of life.
“Many of the newcomers experienced an unexpected receptiveness from the market that business plans did not suggest initially.” The underlying reasons for this success are twofold: Cedants seem to welcome a wider spectrum of re insurers. One cause for this behaviour might be their experience since the 2008 financial crisis. With the Lehman Brothers default, cedants realised that neither size nor reputation is a safeguard against fatal mis takes. The financial crisis made apparent that a widely diversified book of reinsurers has strong merits. In coming Solvency II regulation reinforces this trend by incentivising a diversified panel. As a result, cedants deploy even more sophisticated capital management strategies.
The presentations and more pictures are available at www.catlinreswitzerland.com
The reinsurance sector has also become more clearly segmented. Driven by investor demand, reinsurers have to pursue new avenues to improve their histori cally low price-to-book ratios. As predictable invest ment returns have disappeared, most reinsurers are subject to a strict underwriting discipline. The consequence is a potential erosion of customary market loyalties as reinsurance capacity is targeted towards the most profitable return. In particular the larger players have become more opportunistic in their client orientation, while the mid-sized players try to provide tailored solutions, invest in durable client relationships and continue to follow their cedants’ fortunes. Ultimately, these trends might lead to a more volatile and erratic marketplace as capacity flocks to where the highest price is assumed, therefore accelerating cyclicality and potentially undermining the market’s raison d’être as an economic shock absorber. To differentiate itself from its competitors, Catlin Re pursues a strong client focus and service orientation. It empowers its underwriting teams who have the expertise and authority to make swift decisions for the benefit of the company and its clients.
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A global economic and insurance industry outlook So far, the global reinsurance industry has withstood the global financial crisis well. However, as the crisis continues to unfold, the industry has to identify its options for growth if it is to enhance historically low price-to-book valuations.
The reinsurance sector maintains a strong capital position. However, pressure on both sides of reinsur ers’ balance sheets persists. The industry has not yet been able to translate low investment income into rising underwriting rates. In fact, not even last year’s dramatic insurance claims triggered a sustained price increase.
“Looking ahead, the industry has to prepare for a number of scenarios with major implications for the underwriting and the asset side of the business.” Firstly, deflation has become a likely economic scenario for the mature markets. Alternatively, a rapid shift from low or no growth to a sudden surge, widely disparate across regions, is still likely too. To insurers these potential outcomes have very different implica tions, both on the underwriting and on the asset side of the business. Secondly, GDP and ultimately also insurance growth is shifting from the Western hemisphere to Asia. Insur ers need to consider their products and portfolios as well as their organisational set-up, but also be aware of the (largely) un-modelled risks seeking reinsurance cover in the emerging markets.
Thirdly, with last year’s natural catastrophes predomi nately in Asia/Pacific, risk managers need to revisit their diversification strategies. They have to under stand that what used to be considered non-peak zones may cause losses just as grave as those typically expected from the classical four peak-risks. Fourthly, we are experiencing a technological revolution with innovations penetrating markets ever more rapidly. To insurers this will mean further opportunities to insure new products and value chains, but it will also bring further risks as some of these products and processes are still unknown. Finally, there is a risk that the many regulatory activi ties to tighten control on the financial services sector might effectively strangle business opportunities. The industry still has to decide a coordinated and consist ent response to these challenges. Ultimately each business has to decide which sce narios it perceives as most likely and how it will react if the alternative occurs. If management is able to capture the upsides in this highly challenging environ ment, it may reflect favourably on the industry – also in terms of its valuation by investors.
John H. Fitzpatrick, Chairman Oak Street Management
The presentations and more pictures are available at www.catlinreswitzerland.com
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Because meeting a client personally still matters.
more photos: www.catlinreswitzerland.com
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A strategic outlook for the European insurance industry The panel debated the broad spectrum of challenges that the insurance industry is facing, ranging from economic and political volatility, market maturity or even saturation, rapidly changing customer needs to various unfolding regulatory initiatives.
In respect of Solvency II, Daniela Rode, Director of Regulations at the European Insurance and Occupa tional Pensions Authority (EIOPA), stressed the impor tance of Pillar II: “Capital alone is not sufficient to ensure an insurer’s resilience to unexpected shocks. It needs to be complemented by rigorous yet manage able risk management and governance frameworks. This is one of the key lessons from the financial crisis.” Despite the significant cost associated with preparing for Solvency II the panel agreed that the new regulatory framework is fundamentally on track to benefit Europe’s insurers and their customers. Alan Fairhead, Chief Underwriting Officer, General Insurance, Europe, Zurich Insurance Company, said: “Solvency II will make the huge differences in capital intensity between the various lines of business more transparent. This should improve the efficiency of capital allocation and, ultimately, the provision of insurance cover.” The prospects for the European reinsurance mar ketplace were another area of the discussion, which was moderated by Kai-Uwe Schanz, Chairman and Principal Partner at Dr. Schanz, Alms & Company. The panel agreed that there is more room for medi um-sized players, a trend facilitated by the increasing role of reinsurance brokers, a position that Jan-Oliver Thofern, Chairman & CEO of Aon Benfield attributed to “a more complex risk landscape, enhanced in-house analytical capabilities and customers’ quest for ef ficiency, transparency and the best price. Markus Eugster, Underwriting Director at Catlin Re Switzerland, offered another reason for the growing appeal of medium-sized reinsurers: “An empowered team which is able to respond to clients in a profes sional and efficient way, based on a solid technical understanding.”
From left to right: John H. Fitzpatrick, Markus Eugster, Jan-Oliver Thofern, Alan Fairhead, Daniela Rode, Kai-Uwe Schanz
The panel also discussed ways of generating growth in Europe’s mature insurance markets. Various oppor tunities were explored, ranging from product innova tion to non-traditional distribution channels. But some options are surprisingly straightforward: “One simple piece of advice to European insurers seeking growth,” said Alan Fairhead: “Focus on what your customers really want.”
Your Contacts Catlin Re Switzerland Feldeggstrasse 4 8008 Zurich Switzerland Tel. +41 43 268 34 00 Peter Schmidt
Christophe Chandler
Jérôme Domenichini
Chief Executive Officer
Underwriting Director Zurich
Senior Underwriter Zurich
Tel: +41 43 268 84 30 peter.schmidt@catlin.com
Tel: +41 43 268 84 31 christophe.chandler@catlin.com
Tel: +41 43 268 34 57 jerome.domenichini@catlin.com
Andrés Esteban
Markus Eugster
Antonio Fiengo
Deputy Branch Manager Madrid
Underwriting Director Zurich
Branch Manager Rome
Tel: +34 67 365 64 09 andres.esteban@catlin.com
Tel: +41 43 268 23 75 markus.eugster@catlin.com
Tel: +39 0632 898 751 antonio.fiengo@catlin.com
Daniel Gantner
Martin Hochstrasser
Stefanie Koch
Underwriting Director Zurich
Underwriting Director Zurich
Underwriter Zurich
Tel: +41 43 268 34 28 daniel.gantner@catlin.com
Tel: +41 43 268 23 76 martin.hochstrasser@catlin.com
Tel: +41 43 268 34 29 stefanie.koch@catlin.com
Ortwin Kroeninger
Jean-Pierre Portmann
Maria Elena Saccotelli
Senior Underwriter Cologne
Underwriting Director Zurich
Deputy Branch Manager Rome
Tel: +49 221 1688 7378 ortwin.kroeninger@catlin.com
Tel: +41 43 268 84 33 jean-pierre.portmann@catlin.com
Tel: +39 0632 898 752 mariaelena.saccotelli@catlin.com
Julio Sáez
Dorothee Therstappen
Toni Vukadinovic
Branch Manager Madrid
Underwriter Cologne
Underwriting Director Zurich
Tel: +34 67 073 99 02 julio.saez@catlin.com
Tel: +49 221 1688 7360 dorothee.therstappen@catlin.com
Tel: +41 43 268 34 53 toni.vukadinovic@catlin.com
Impressum: Published by Catlin Re Switzerland / Concept & Design by agor ag, Zurich / Edited by Dr. Schanz, Alms & Company, Zurich