CEO of insurer and reinsurer ACE Group Evan Greenberg said that the firm expects the catastrophe reinsurance pricing trend to continue for the foreseeable future. The comments were made on the Zurich-based re/insurers latest quarterly results conference call when Greenberg also suggested they would pull back from catastrophe lines if necessary.
Greenberg said that ACE’s global reinsurance business was down about 5% for the quarter, citing competition in the reinsurance market created by abundant capacity and the influx of third-party capital. Catastrophe reinsurance pricing is down around 5% internationally and 10% to 15% in the U.S., he said, and that is a trend that ACE expect to continue.
Greenberg said that with the influx of new capital from capital market investors, on top of an already well capitalised reinsurance sector, there is now more capital chasing, in some cases, less business opportunities. He cited supply and demand dynamics as factors resulting in price declines.
It’s not the same picture across the entire global reinsurance market, but the high-profile area of U.S. catastrophe reinsurance is “A small thing that casts a big shadow”, said Greenberg.
Greenberg said that where alternative capital has entered reinsurance exposures haven’t grown significantly, so you end up with a pool of reinsurance opportunity but with more drinking out of it. He said that some are chasing market share and perhaps standards are not the same as at ACE for some players now in the market. He said that for many players, writing catastrophe business is all that they do and they may be feeling compelled to deploy capital at any price.
Greenberg is pragmatic about the market though, saying that; “The market you’ve got is the market you should expect to have.” He said that ACE would continue to operate as normal, and that if they like trades then they will continue to participate. If they don’t like opportunities then ACE is not afraid to shrink businesses and pull back from certain lines. ACE has such broad coverage across lines of business and geographies that Greenberg said he is not concerned about doing that at the moment.
For companies operating across broad lines of business like ACE who also write property catastrophe reinsurance business, pulling back from that market while focusing on more lucrative opportunities is one way to react to the changing market dynamic. The question that will be asked in the future though, is how easy is it to come back into the space when rates improve? If rates improve and firms like ACE, who have pulled back on writing catastrophe reinsurance business, try to re-enter the market they may find that they time their reappearance with an even greater influx of third-party capital trying to take advantage of pricing. That could prove to be a dangerous strategy and it’s one where timing and also long-standing market relationships will prove vital.