Insurance News

Insurers differ from reinsurers on rate reductions

Posted on: October 28, 2009

There is a ?disconnect? between reinsurers and insurers, with the former exercising more discipline in their underwriting, say many observers.

John Daum, New York-based executive director of brokerage Lockton Re, said, ?Reinsurance pricing has still been fairly firm and disciplined, and the underlying insurance carriers haven’t been able to raise the rates? and are continuing to cut them, he said.

?It doesn’t appear that reinsurers are following the primary market down,? said Robert DeRose, vp at Oldwick, N.J.-based A.M. Best Co. Inc.

Reinsurers have reduced premium volume, and shifted away from casualty to property accounts, which have better rates of return, said Devin Inskeep, a senior financial analyst at Best.

Mark Rouck, Chicago-based senior director at Fitch Ratings, said, reinsurers ?are very attuned? to the returns on capital, ?trying to estimate and model what each particular contract will do with regards to their overall portfolio.?

In addition, primary insurers often insure thousands of policyholders, while reinsurers deal with a relatively small number of contracts, which ?kind of lends itself to the ability to do that kind of modeling and estimating process,? Mr. Rouck said.

Paul Newsome, an analyst with Sandler O’Neill & Partners L.P. in Chicago, said another factor is ?generally more professional reinsurance management.

?You have some very disciplined writers like, say, Berkshire Hathaway, that are very willing to step back from the market if they don’t get the returns that they want,? said Mr. Newsome, referring to the Omaha, Neb.-based reinsurer’s recent reduction in writing cat business (BI, June 29).

However, John Ehinger, president and chief operating officer of Willis Re Inc. in Philadelphia, said that saying there is a disconnect between reinsurers and insurers is ?probably an unfair characterization,? just because of the implications it gives to the primary markets.

?A lot of reinsurers’ risk are driven by the tail-type events, which enforces a reasonably disciplined management process around how they conduct themselves and how they manage capital,? said Mr. Ehinger.

Insurance tends to involve smaller ?bites? and ?a lot more competition,? he said.

Copyright © 2009 Crain Communications, Inc.

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