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ACE, maintaining discipline in a market “awash with capital”: Greenberg


ACE Group CEO Evan Greenberg said that his firm’s reinsurance arm is maintaining its discipline in a reinsurance market that is “awash with capital,” while the M&A trend is likely to take some capital out of the market which could create some stability.

Speaking during the ACE earnings call yesterday Greenberg discussed reinsurance sector trends from a number of points of view, as reinsurance seller, reinsurance buyer and on the consolidation where ACE would likely be a buyer given its overall size and scale.

Greenberg regularly comments on the state of the market in these calls, but his commentary is typically more measured than most and often provides a constructive look at some of the market trends and issues creating pressure for traditional reinsurers.

On his firms own reinsurance underwriting operations, Greenberg said; “ACE Global Re or Tempest is a very important of our company.”

He continued to say that it’s contribution will “wax and wane” dependent on market conditions as his firm “maintains discipline” but that overall the reinsurance operations are a “very good contributor to book value growth.”

The global reinsurance business at ACE had a “very good year” in 2014, Greenberg explained. However, the firm continued to find a need to pull-back on certain areas of the reinsurance market.

“Net premiums declined almost 6%, as we maintained underwriting discipline in a market awash in capital,” he continued. “As we have said in the past, and continually demonstrated, we are fully prepared to shed volume in any business, as necessary, in order to maintain an underwriting profit.”

Greenberg also sees opportunities while much of the rest of the market is focused on M&A. “You’ve got to look a little more inwards and that can present a tactical opportunity for global re(insurance) and fewer players should mean maybe a little more rational competitive environment over time and that can only benefit us.”

At the same time ACE is benefiting in its own reinsurance purchases. Greenberg said; “As a substantial buyer of reinsurance we continue to benefit from the current reinsurance market, in terms of pricing and improved terms.”

Greenberg continued on ACE’s reinsurance renewal; “You have been seeing general market commentary that both rates and terms and conditions for buyers of reinsurance have improved and we are a major buyer in the market.”

“We have benefited from reinsurance market conditions both on terms & conditions and in pricing, and that will flow through both to benefit our competitive profile in the marketplace and any savings will flow through to the bottom line,” Greenberg stated.

Greenberg had some comments on the recent wave of mergers and acquisitions in the reinsurance marketplace, something which he hopes may result in a more disciplined, perhaps smaller group of large players.

“Given the softness in the reinsurance environment and the wholesale market, particularly London and Bermuda which to me are quite akin to the reinsurance market, the pressure that this places on smaller players I imagined there would be more consolidation and we are seeing that,” Greenberg said.

He noted the drive towards both scale and efficiency; “I think there is a drive to a bigger balance sheet that gives some more flexibility and it’s more attractive to counterparties and that creates more efficiency in terms of expense takeout.”

However, noting that M&A isn’t necessarily always positive, Greenberg likened the trend to “doubling down on a bet,” an interesting observation and correct that sometimes one plus one, in terms of a merger, does not equal two.

As we wrote in an article yesterday, there is absolutely no guarantee that firms undergoing M&A will come out the other side stronger, nor that they won’t be left behind while undergoing the merger process.

Greenberg said that the trend is set to result in; “More concentration to reinsurance and London and Bermuda wholesale, though it is a player then who swings a bigger stick and so maybe commands more attention and respect in the marketplace and I understand that.”

“On the other side of the coin, it means fewer players competing,” Greenberg continued, adding that this could mean that some capital comes out of the business, which he sees as no bad thing.

“Hopefully that creates some stability and hopefully bigger player will equal more rational behavior. From a counterparty perspective I like a bigger balance sheet for those that we are reinsuring to or doing business with,” he closed.

So while ACE maintains discipline on one side, it can take advantage of cheaper reinsurance capital on the other, allowing it to better optimise its own capital efficiencies.

The fact Greenberg hopes that a wave of M&A may take some capital out of the industry is likely, however it’s also likely that it will be replaced rapidly in the current environment. Whether it results in more rational underwriting from larger, merged reinsurers, remains to be seen. The anecdotal discussions we’ve had with some reinsurance buyers suggest that some of the largest reinsurers have been supporting price declines and expansion of terms, so maybe bigger does not always equal rational.

Read some of our previous articles containing comments from Evan Greenberg:

ACE seeks leadership role in evolving reinsurance market: Greenberg.

Alternative capital stresses traditional reinsurance market: Greenberg.

Painful adjustment ahead for reinsurance: ACE’s Greenberg.

ACE’s Greenberg says expect catastrophe pricing trend to continue.

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