Panellists clash over nature of soft market

Panellists clashed on whether the reinsurance industry will remain cyclical in its pricing or whether a more fundamental structural shift is taking place at a debate held at the International Insurance Society’s annual conference in London yesterday (Tuesday June 24).

Some panellists said they believe cycles will remain but stressed that good reinsurers can remain profitable even during a clearly soft market. Others argued that a bigger change is afoot in the industry and marked swings in pricing are now a thing of the past.

Urs Ramseier, chairman of ILS specialist Twelve Capital, said he believed a more fundamental structural change was occurring in the industry. “This is not a traditional soft market,” he said. “There is a structural shift occurring, where I believe that driven by competition from new capital, lower premiums are here to stay. Companies will have to learn to adjust to that new operating environment.”

To a point, Denis Kessler, chief executive of SCOR, agreed. He said that the traditional cyclical nature of the market had always been caused by friction in the market and delays around how quickly new capital could arrive or be pulled out of the market. Since this process is more efficient than ever, he believes this will also dampen any cyclical activity in pricing.

“In today’s market, a lot of that friction has disappeared,” he said. “Instead, we simply move quickly from one equilibrium to another. On top of this, when so much information is available on a daily basis, it is also possible to adjust and adapt very quickly. The winning companies in the future will be those that can detect these changes quickly and react by moving capital around. Management will need to be more vigilant than ever and be willing to move fast.”

Albert Benchimol, chief executive of AXIS Capital, however, believes a cyclical market does still exist. He said the trick for reinsurers is simply to accept this and do the basics well in terms of risk selection and offering quality client service.

“Everyone knows we are cyclical industry and every company plans for that,” Benchimol said. “We have had two or three years of good market conditions so it is no surprise that a lot of capital has now flowed into the industry. We are suffering from typical supply-demand imbalance. Our job now is to get back to basics. To go back to our core values, service our clients well and be very smart about risk selection. Those things are critical.”