Falling cat rates a long-term industry trend
Falling catastrophe rates are a long-term secular trend rather than a short-term cycle phenomenon, said Nephila Capital co-founder Frank Majors during a panel discussion at the ILS Bermuda Convergence 2013 conference last week.
However, Majors said he was relatively bullish on the pricing outlook for the January 2014 renewals, saying that he did not expect rates to be as bad as many expected.
"The story for 2014 will be more about signings than pricing," he told an audience of 270 investors and convergence market executives.
Majors observed that there was a movement towards having fewer participants on reinsurance programmes, with the market bifurcating between the companies that lead the provision of cover and those simply "filling the slip".
Validus Re CEO Kean Driscoll echoed this view. He noted that he was seeing more "club deals" and said that reinsurers needed to be able to provide clients with extra value-added services to secure the business they were after.
"You need to have scale and you have to have pretty sharp elbows too," he explained.
Elementum Partners co-founder Tony Rettino said that he also saw a trend towards more bespoke deals and a more continuous renewal cycle, adding that the current market was not truly soft.
"There are worse markets out there that we've all seen," he said, adding that as long as terms and conditions held up they would mitigate the slip in pricing.
The panellists held back from giving direct guidance on their outlook for the January renewals.
But Majors argued that the growth of the ILS market has provided a great chance to dampen volatility in the broader reinsurance market, in response to a question about the durability of alternative capital.
"Any time there's an opportunity, capital will flow to that opportunity," he said. Majors claimed that the expansion of the alternative segment has built "deeper channels" between the reinsurance market and capital, while noting that historically the reinsurance market has undergone significant volatility post-event.
Rettino said that more stable pricing worked in favour of both investors and cedants. "I would gladly trade the peaks of pricing for the troughs."
Discussion moderator Arthur Wightman of PwC questioned the panel about a speech from John Nelson earlier this year, in which the Lloyd's chairman claimed that the expansion of managed funds in the reinsurance sector risked creating greater distance between capital and cedants.
Majors said he disagreed with this view.
"Tony and I are much closer to our capital than [reinsurers] are - we have to ask [investors] for it personally and justify it on an ongoing basis."
Likewise, the cat bond market provides the ability for insurance cedants to connect straight to the capital providing their cover, Majors said, picking out the recent MTA MetroCat cat bond as an example.