Reinsurers are ready to say “enough is enough” on rates

Competing brokers should bear some of the blame for the continuing softening of rates though their influence has also been reduced on some placements, Jean-Paul Conoscente, senior vice president and chief underwriting officer at SCOR treaty underwriting, told PCI Today.

“The placement role of the broker has been reduced by those clients that know exactly what they want. However, cedants will continue to use brokers as third party advisors.

“Increasingly, brokers are remunerated through fees rather than commissions, and often the fees themselves become dominated by non-placement services.”

Now, Conoscente claims, many of the leading reinsurers are ready to say “enough is enough” and draw a line in the sand with regard to property/casualty (P&C) rates.

“At some point you have to draw the line, globally everyone (reinsurers) agrees that where we are at currently is as close to the bottom as we are willing to go.”

This toughening of the line follows several years of softening rates in the P&C sector. A combination of catastrophe-free years and a challenging investment marketplace has seen some underwriters struggle to remain disciplined in such a challenging environment.

“It has gotten to the point where US casualty has hit rock bottom; commission levels are high already and there is little to no room for additional commission. On the property side, margins have been squeezed significantly by the capital markets.”

However there was more woe in store as he predicted a further rate decrease of 0-3 percent in what has been another catastrophe-free year.

SCOR has a Group ROE target of 1,000 basis points above the risk-free rate.  “We are on track to reach our target,” he said.

And he revealed SCOR was a pushing for growth in the US marketplace. “We are looking to grow profitably in all lines of business, including property. We are also underweight in casualty and in specialty lines, where we will look to grow further in the future.”

Conoscente believes that even though the reinsurance market is shrinking, opportunities remain to work with partners that share SCOR’s approach to business. Its client-focused approach, which allows it to support a range of different lines in different geographical locations, has real value, he said.

“Insurance companies are looking for partners that can support their activities in different lines of business and in different geographical locations. They also value security and the Group’s AA- rating," he said.

"We want to identify clients that we can work with across all our reinsurance programmes. Rather than focusing on separate lines of business, we are more client-focused in that we try to support our clients across all their business lines.”

Despite his criticism on rates, he admitted brokers still have an important role to play. "The broker still has an important role to play. We will continue to run the business through a broker, but we will also take a global approach with clients that share our global view," he said.

He added he did not see the growth of alternative capital as a threat to SCOR’s business model. “We try to be agnostic regarding alternative cap. It is clearly a challenge for some of our peers as it creates strong competition.

“Some of them have even have rushed into other lines of business and other geographical areas. At SCOR, our diversified business model not only makes us more immune to this pressure, but also allows us to embrace alternative capital as part of our strategy,” he said.

Conoscente believes the market is becoming increasingly tiered, with smaller players finding it increasingly hard to compete.

He blames regulation for this—both in Europe and in the US. “It’s putting a lot of regulatory pressure on everyone, which can be very demanding in terms of personnel and analysis. There are more international regulatory demands than in the past, and even though the authorities are trying to develop some kind of equivalence, there are also more local regulatory demands. We think that this is what will drive all reinsurance business models in the future.”