Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

An unquenchable thirst for premium is eroding underwriting discipline


The unquenchable thirst for reinsurance premium. A symptom of the current reinsurance market environment of excess capital, growing capital levels from new, third-party investor sources and an urge to put all this capital to work.

This is resulting in an erosion of underwriting discipline, according to the comments of President and COO of the insurer and reinsurer W.R Berkley, W. Robert Berkley Jr, during the firms Q2 earnings call.

Berkley said that there has been no change in market conditions, the pricing remained mixed and the level of competition varied greatly by territory, line of business and even down to classes within the same product lines.

Catastrophe exposed property remains the most exposed to the pressured market environment, Berkley explained, with the increasing amount of reinsurance capacity and the pricing trajectory affecting this area of the firms business. This global reinsurance market has given the firm reason to pause, as evidenced by yet another pull-back on reinsurance premiums.

W.R. Berkley’s global reinsurance segment’s net written premiums were down 17%. Berkley said that this is mainly due to market conditions and the firms underwriters exercising the appropriate level of discipline, behaviour which he said was to be applauded.

The supply to demand imbalance remains evident in global reinsurance, Berkley said, driven by many market participants “unquenchable thirst for premium”, which he said is being addressed by some through an erosion of underwriting discipline.

Berkley said that the evidence is there that this is “not a classic insurance cycle.” The firm concentrates on trying to find the right balance between rate increases and not becoming over-exposed. Like so many W.R. Berkley is having to be selective and also expansive in other areas, in order to maintain a level of profit.

The unquenchable thirst, as Berkley puts it, is driven by a need to put reinsurance capital to work, both traditional and alternative, as well as a need to maintain returns by writing enough premium to meet shareholder expectations. In some cases this means writing more premium at lower rates, or with more expansive and all-encompassing terms, the erosion of discipline he speaks of.

Once again, the effects of this will become evident in quarters to come. There are some hints in the results this time around but with no sign of anything changing in the market the evidence may become clearer in third and fourth quarter results, as to who exactly has been quenching their thirst for reinsurance premiums at any cost.

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