(Re)Connect Day 1: Reinsurer leverage, Covid overhang, capability steroids

By 13:00 London time, (Re)Connect conference delegates had heard insight from the CEOs of entities controlling $80bn of non-life reinsurance business. And by 14:00, the audience had heard from the CEOs of reinsurance brokers controlling around half of the intermediated market. 

Here are three quick takeaways and some key quotes below.  

1. Reinsurers have the leverage this year 

After years of entering Monte Carlo with the need to try and arrest rate declines, or to push them up a gear, reinsurers this year have the stronger position relative to brokers/cedants, with even intermediaries as well as reinsurers forecasting rate rises at 1 January. 

Munich Re CEO Joachim Wenningexpressed optimism in the market and noted a new phenomenon in this cycle in the form of spillover effects to non-loss-affected programmes and regions. 

He said he expected to see a couple more very good years with better rates, although he pointed to a picture in cat that was more dependent on externalities than in casualty/liability lines. 

Hannover Re’s Jean-Jacques Henchoz forecast accelerating momentum from mid-year renewals, which were +10% in excess of loss. 

Andy Marcell, CEO of Aon’s Reinsurance Solutions business, acknowledged that we would see higher pricing at 1 January in property. In cat, the rate of the rate increases is going up and 1.1 looks like it will be a continuing story, with casualty likely to be more heavily driven by original rates. 

He continued: But I dont think it will be dramatic. In the end cool heads will prevail… 

Willis Re CEO James Kent said that the broker expected the technical correction in North America to continue, although he pointed to scope for dynamics to tip. The point about this market is it is not capital constrained… [so] where pricing and performance improves, we do see capacity moving there. 

2. Covid-19: An overhang 

Although peak fear was passed several months ago, all participants agreed that a high degree of uncertainty remains about the ultimate size and shape of the loss caused by Covid-19. 

Swiss Re CEO Christian Mumenthaler said that BI had been a particular reserving challenge, but he argued that multiple areas were subject to a big range of outcomes. Casualty is a big question mark, no one knows whats going to happen to casualty due to Covid-19. 

Willis Res Kent said the most extreme of the multiple scenarios projected earlier in the pandemic by his primary colleagues – which would result in $140bn of claims – had not been seen yet. 

If you look at recent court cases in the US, they have generally favoured the industry by not creating retrospective cover where its not given and in terms of the way physical damage is treated. 

He added that the long-tail component of the loss – including directors’ and officers’ and errors and omissions – represented the great unknown. 

Marcell talked about the overhang of pandemic claims and also stressed the role of low interest rates – an indirect consequence of Covid-19 – as a key driver of market dynamics. 

3. Aon-Willis: Capability steroids 

Marcell and Kent both addressed the Aon-Willis deal, acknowledging the limitations around what they could say. And although they were restrained, what they were able to disclose provided an interesting lens on deal which will create a $2.5bn+ revenue reinsurance broker and the worlds biggest overall broking firm. 

Kent advocated for the deal and stressed the way in which it would provide the combined firm with greater abilities to meet extremely broad spectrum of client demands. 

The CEO said that if you look throughout Willis Towers Watson there is not a single question that an insurance CEO could ask that they cannot find an answer for. When you look at the merger of Aon and Willis, it puts that on steroids in terms of the scale and the scope of expertise that we’re able to provide to clients.” 

Effectively addressing a different audience, Marcell chose to largely let the merit of the deal speak for itself backed by the overwhelming shareholder vote, instead focusing in on the scope that Aons rivals had to successfully compete for talent – and business – post-deal. 

Referencing prior broker M&A deals including MMC-JLT, Marcell said that these showed that opportunities arise for other intermediaries to get additional capital and investment, which they have and to lean into the marketplace thinking there is an opportunity to acquire talent and expand their business. 

He concluded: There has been a shift in talent as those competing brokers start to staff up. And thats natural, it will be ever thus, and its healthy for the marketplace to see some of this transition. 

With Aon currently trying to steer the deal through choppy anti-trust waters and reinsurance a likely focal point, this may be a rare occasion when you hear the firm talking about how well its competitors will be able to do when they go head-to-head… 

To view any of today’s (Re)Connect sessions on demand, click here.  

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