Learning the lessons of 2011
Did the international property cats of 2010/2011 ultimately change anything? Or will we soon be getting back to normal?
I think it's changed in certain geographical areas. For example, if you look at Japan, the rates continue to go up - I'm not saying that there has been a complete change in the business model, but underwriters have got some pretty meaningful price increases, as they should.
And they've probably looked at their aggregate exposure and reviewed the modelling and looked at that area of the business quite differently.
When you have very longstanding relationships such as those between Japanese companies and the Lloyd's and other markets, over time the parties become more and more comfortable with each other and the relationship evolves and deepens. Then a major disaster occurs and it changes things.
That's definitely happened in Japan, where pricing has risen and line sizes have been reduced, as well as in other areas such as New Zealand and Chile.
In many countries where companies have been hit hard there has also been a lot of aggregate pulled out. There has been quite a change in capacities in regional areas of international cat business. Such changes haven't necessarily manifested themselves in pricing, but a lot of capacity has been withdrawn.
But there is a definite geographical distinction being drawn. It is interesting to compare the international cat situation with what happened in North America in 2011 - which was a bad catastrophe year. In North America nobody pulled out, rates went up a little, but not hugely, and now there's definitely an evening out in pricing and we still have ample capacity.
How much of a psychological effect did the Zenkyoren programme [the largest cat treaty in the world] suffering a total loss have on the market?
I think the business has responded well to the Japanese losses and, while there have been some increases, markets have reserved reasonably well. The renewals have gone through and this has shown our business in a good light. It exists to pay losses like that and it is paying them and is still in the business, which is what we want.
US retention levels have risen inexorably over the past decade. Do you think we are anywhere near seeing their stabilisation or even reduction?
I think it's all about capital availability and availability of reinsurance at the right pricing levels. For instance, cat rates in Continental Europe are much lower than they are in the US. European cedants are looking at Solvency II issues and their capital ratios and if you can get a product that protects you lower down and it is cost effective, why wouldn't you look at such a product?
Conversely in the US, if your capital and solvency ratios are in good shape and the price of your reinsurance product goes up, why wouldn't you retain more, rather than paying pretty high rates-on-line at the lower end?
In US casualty do reinsurers have themselves to blame for turning away business that turned out to be a lot more profitable than they were initially expecting?
Once again it's all about the capital that has been built up. Some companies have been very successful in speciality lines in the US and they have grown capital more and more. This means they don't have the need to rely on reinsurance as much as they once did. Should reinsurers have been a bit more aggressive at lower attachment points? I don't really think so - I think that you have got to accept that this happens in the cycle.
But I think there is a difference here. In previous cycles I don't think capital was built up as much - whereas today many insurers have substantial capital.
We've also seen a lot of the larger companies growing their market share through acquisition and that has reduced the potential for reinsurers. This is all part of life and has to be accepted.
But in this business we do fail to remember the past, when phenomena such as asbestos and pollution caused such enormous disruption.
I cannot believe that we have progressed so far technologically that these sorts of problems are not hidden out there in other areas of our business. There are so many things that can become a major issue, whether its breast implants in Europe or something going wrong in the pharmaceutical world. The clash that is possible between classes through common causation can be absolutely catastrophic.
I don't think that reinsurers or insurers are particularly mindful of these potential exposures - they may be aware of them, but they are not in the front of their minds.
How has the Rendez-Vous changed in the time you've been going?
I think people work a lot harder than they used to!
What are your hopes for this year's Rendez-Vous?
My main hope is that I manage to keep to my agenda for the first time ever and don't miss an appointment!