CEOs Outline Their Biggest Fears For The Coming Year

Competition, capacity and terrorism are among the concerns voiced by the industry’s top chief executives in this year’s Reactions leaders’ survey.

For some, the potential for price wars and their impact on the reinsurance industry’s profitability is worrying, especially after the amount of effort made in recent years to instill pricing discipline.

“I have a concern that excessive price competition to maintain market share may become a key driver in bringing a strong cyclicality back to the business, after the industry has done a lot to improve the technical approach to risk-taking,” says Inga Beale, CEO of Swiss reinsurer Converium. “The industry has worked hard at improving transparency and ensuring that pricing reflects the ever-changing risks and exposures, and we should do our utmost to continue this trend and to keep an eye on long-term sustainable profitability.”

Others agree. Barbara Merry, CEO of Lloyd’s managing agent Hardy Underwriting Group, says her biggest worry for the next 12 months is pricing. “There is still far too much capacity and therefore competition for certain classes, and I am concerned that there will be a bloodbath as insurers continue to grab market share at any price,” she says.

Some CEOs are more concerned about the lack of reinsurance and retrocessional capacity. The heavy 2005 hurricane season has led to a capacity crunch in catastrophe-affected areas. This could get even worse if there is another active year in 2006.

Broking chiefs, naturally, are particularly worried about the potential lack of capacity. Toby Esser, head of broker Cooper Gay, lists “the potential for another severe hurricane season impacting negatively on the available capital in the reinsurance market” as one of his biggest concerns for the coming year.

But heads of reinsurers are also worried about being able to provide enough capacity to their clients. Some CEOs’ fears encompass both capacity and competition. “My concerns are divided between the lack of reinsurance capacity for catastrophe-prone areas, particularly Florida and the Gulf of Mexico, and the softness in the rest of the market,” says Don Kramer, chairman and CEO of Bermuda start-up Ariel Re.

The threat of terrorist attacks is also at the front of many minds. On Aug. 10, a alleged plot to blow up passenger jets on route to the U.S. from the U.K. was stopped, serving as a reminder that terrorists could strike at any time and cost the industry billions of dollars.

“The backdrop of the current state of global political instability and some of the issues that come from that are very much on our minds,” says Ken LeStrange, chairman, president and CEO of Bermudian insurer and reinsurer Endurance. “In August a pretty serious terrorism threat was thwarted, and had it been brought to fruition it would have had fairly dramatic consequences to the insurance industry and to the world in general.”

For others, the combined threat of terrorism and pandemics is keeping them awake. “The two challenges to the insurance industry which cause me the most concern are terrorism and the threat of a pandemic,” says Stephen Catlin, chief executive of Lloyd’s managing agent Catlin. “These perils are impossible to model accurately.”

For the full survey, including CEOs’ thoughts on rating and model changes, sidecars, and the effects of the global investigations of the industry, see the September issue of Reactions.