Capacity will move to stable Europe

Patria Re expects more reinsurers to shift capacity into a ‘stable’ European market—a strategy the Mexican reinsurer has adopted as it targets the region to balance its own portfolio.

Although the earthquakes in Italy boosted insurance take-up slightly, most European markets are perceived as stable, Patria Re CEO Ingrid Carlou, told Baden-Baden Today. She believes that despite recent losses in the US, there could still be some softening especially in claim-free programmes. Without significant losses in the region, European pricing is likely to show stability, Carlou said.

Reinsurers perceive the region as less risky than, for example, North America especially in light of the recent hurricane losses and wildfires that have hit the region. As such, they may shift more capacity in this direction, Carlou noted.

Based in Mexico, Patria Re is looking to grow its exposure to Europe as well as to the US and Asia to improve its geographical balance. At present, the largest part of its portfolio is focused on Latin America.

“Diversity will be key to writing a successful marine book so I will target business across the board,” she said: Patria Re is offering marine treaty capacity to complement its property offering.

At the end of 2015 Patria Re secured, in partnership with Ironshore’s Pembroke Managing Agency, Lloyd’s approval to establish a special purpose syndicate (SPS).

Patria Re joined the Lloyd’s platform in partnership with Pembroke as the first Mexican insurer to drive Latin American specialty business lines to the Lloyd’s market.

With a relatively young portfolio, Patria Re is looking for growth, albeit in a measured way. ”Emerging market capital is being well received by cedants in Europe,” Carlou said.

She expects some consolidation in the European market, which is likely to be driven by overseas acquirers, possibly from Japan, where market players are facing limited growth opportunities.

“They have strong balance sheets and have already shown willingness to make acquisitions,” Carlou said. Potential M&A activity may further blur the lines between reinsurance and insurance, she noted.

At the Baden-Baden reinsurance meeting Carlou expects the losses from the hurricanes that hit the US and the Caribbean to be a major talking point, as well as the earthquakes that struck Mexico in the third quarter. The main question people will be looking to answer is whether the losses will cause the market to turn, or at least allow for a stabilisation of rates.

Nat cat losses are also set to affect the amount of reinsurance limits being purchased, Carlou said. “While models are never perfectly right and serve only as signposts, the question will be how accurate the models were when compared to the actual losses. Did the models perform as promised?”

Prior to Baden-Baden, some market players predicted that there would be no rate reductions in the upcoming January renewals, Carlou noted, adding that the nat cat losses from the hurricanes and the earthquakes in Mexico may not be enough to turn the market dynamics—in Europe at least.

“Harvey, Irma and Maria were all large losses in their own right. It’s the aggregation that may potentially make this a capital event and a market-turning event, particularly when combined with the Mexican earthquake and activity around the ‘ring of fire’,” Carlou noted.

“To a certain extent, Irma was an expected loss, but some of the estimated losses around Maria are more of a surprise,” she said. “The losses hit many classes and the premium base is far lower than it was five years ago.

“Several insurers want to be on the safe side and are buying back-up cover,” Carlou concluded.

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