Reinsurers on the defensive

The renewal of the 2005 reinsurance treaties has been achieved in a rather satisfactory fashion for the insurers. With the exception of energy and marine, the other classes of insurance have benefited from the fast-improving renewal conditions that are different from the ones that had prevailed in the previous year. Even the risk rates pertaining to natural disasters have witnessed some kind of a «détente», and that says it all!

Several factors may account for this «soft attitude» on part of the reinsurers:

• the firm resistance of insurers who, during the bargaining stage, have spared no effort to make use of competition as a means to get the best prices, even if that meant retaining more risks.
• the new hierarchical organization of decision criteria, which puts reinsurance cost at the top of its priorities ahead of security. Out of necessity, this reversal of priorities is dictated by the budget cuts and by the profitability requirements of shareholders.
• a better management of risks acquired by insurers, thanks namely to, the command over the new tools for the analysis and modeling of reinsurance schemes.
• a favorable framework: having overcome the previous crises at the cost of a clean-up and a consolidation of its foundations, the market, which has gathered momentum, is now better poised to absorb the 2004 disasters.

A couple of other elements equally contribute to the market loosening:

• the growth of reinsurance capacity. Having deserted the market, investors are now reengaging in reinsurance by bringing additional capacities to further reinforce it.
• the pragmatic attitude of some reinsurance underwriters who had to resort to discounts in order to secure their portfolios and establish best customers' loyalty.