Buyers and brokers: further rate reductions are unhelpful

There will be less talk of rate reductions in Baden-Baden this week as buyers and brokers have both accepted that further reductions will not help the market, Geoffrey Peach, executive vice president of TransRe Europe and chief executive for TransRe London, told Baden-Baden Today.

Instead, he said, many buyers are more interested in forming deeper relationships with bigger reinsurers that extend across multiple lines of business. “There has been a flight to quality and to reinsurers big enough to support them across all lines,” Peach said.

“They want true reinsurance partners. A tier of strong traditional reinsurance partners is emerging that can operate across many aspects of their business. There is a growing appetite for these very traditional reinsurers.”

He added that while the implementation of Solvency II has informed this trend to a certain extent, the change in reinsurance-buying habits because of the regulation has been slower to emerge than some expected.

“Some monoline insurers have found the capital requirements challenging but there has been a more general trend where you are seeing the C-suite of insurers consider the value and possibilities of reinsurance more. But the true fallout from Solvency II is still developing,” he said.

Because he believes the market is reaching a plateau on rates, Peach does not foresee negotiations being too fraught in Baden-Baden.

“There is a narrower range of outcomes than normal, but if people push for further reductions, things could get tense,” he said. “There is nothing more to give.”

He said some of the cat losses this year, while not big, showed the cracks in some companies’ profits. “Some have been papering over those cracks but I do think we will start to see a reaction from reinsurers now and that will prevent further weakening,” he concluded.