Reinsurance executives who would normally be heading to the Rendez-Vous de Septembre in Monte Carlo are missing the experience but carrying on business just fine without the in-person interactions in a picturesque setting.
“In the context of everything else that’s happening in the world, I think not meeting in Monte Carlo is the least of issues that we should worry about,” said Moses Ojeisekhoba, Swiss Re’s chief executive officer for Reinsurance, during a Swiss Re virtual media conference held in place of a Monte Carlo media briefing.
Still, Ojeisekhoba noted that “our industry is one that is built on relationships—and those relationships are important.” He continued: “In the future, we need to question whether we need Monte Carlo in its full scale or whether we need a version of it. But I think the interaction, the networking, the informal component is clearly important, and we have to find a way to replicate elements of that while also taking advantage [of the fact] that we’re not spending as much money as we ordinarily had done this year.”
Thierry Léger, group chief underwriting officer for Swiss Re, said that while the “extreme intense” experience of formal and informal interactions that are typically crammed into the three or four days at Monte Carlo really cannot be replicated in a virtual way, high-quality virtual interactions are still possible. “I am absolutely sure that because we’re in a B2B world that the outcome will be a very positive one—not ideal though,” he said.
How’s the Blood Pressure Scale?
Carrier Management asked other market participants whether the tone of negotiations had changed without face-to-face meetings this year, and whether reinsurers might offer less generous terms to clients they would normally be seeing in the vicinity of the billionaires’ playground in Monaco.
David Brown, chair of Hamilton Re in Bermuda, said it’s business as usual. “For the most part, we know our brokers and we know our clients. We spent years building those relationships, both in this company and every one of our people has had prior company experience. This is rarely dealing with a brand new person. This is somebody with whom you’ve had a relationship for many years.”
“So, it’s a different medium. It’s not sitting in front of them in a bar or a restaurant in Monte Carlo. It’s doing it over video. But because of those longstanding relationships, it’s fine. And it’s actually efficient.”
“It’s saving everyone a lot of money on travel and entertainment,” he said, noting that he didn’t have to fly to anywhere to meet someone and they fly back. “In many ways, the silver lining of this pandemic has been making it much more efficient at using our time by using technology,” he said.
Like Brown, Amanda Nguyen, U.S. Casualty Solutions leader for Reinsurance within Aon’s Reinsurance Solutions business, highlighted missing airport trips when asked how negotiations taking place at a time of COVID distancing restrictions measure up on the blood pressure scale of prior hardening markets. In the past, reinsurers might fly out to cedent locations for underwriting audits to find out about how cedents have been improving their casualty insurance books.
Without them this year, negotiations are not more stressful, she confirmed. To the contrary, “the really interesting thing about a virtual environment is that reinsurers are participating in either group meetings and/or individual meetings without other business distractions really. Setting the scene of prior years, imagine that “you fly to New York City and you have an audit for two days. Your phone is ringing off the hook. You’re busy with a bunch of special acceptances that have come in your mailbox, and you’ve only got two days with those files. That’s it.”
These days, Nguyen senses that when reinsurers are in meetings, they are actually “a little bit more focused.” And strangely, being in a virtual environment does allow brokers to get coverage for things that wouldn’t always get covered as easily. “It’s easier to get a person in the [virtual] room on the phone than if they had to be in the [physical] room. We [also] find that our clients are able to get more of their management teams and sometimes representatives of every product line on a call,” she added.
“We all had low expectations for what was going to happen. But we’re still able to have really thoughtful and constructive conversations, and then in many cases that I’ve observed, reinsurers are getting these one- or two-week windows available to them to audit files, so they can look at what’s important to them over a longer period of time.”
Brown gave a similar assessment when he spoke to Carrier Management. “One of the things that this has done for Bermuda, which we never did before, was the ability to do a lot of audits and things like that. So now underwriting and claims audits can be done remotely. That was something that required visits in the past. And for a lot of businesses, that wasn’t practical or feasible for Bermuda companies, so they didn’t get involved in that business, where now perhaps they can.”
More generally, Brown observed that “people are now used to dealing over Teams or Zoom or whatever they’re using. I think the industry has done an incredible job with its own people, and certainly Hamilton has had no problem at all having its people work remotely. And I think the brokers and the markets have done an incredible job of bringing people together and getting business done. I don’t think there is any business that hasn’t got done because we’re all relying on this technology,” he said.
Asked whether innovative Bermuda companies might have an advantage in this environment, Brown agreed that the Bermudian reinsurers are “all relatively youngish companies, so their systems tend to be more advanced. Therefore, switching to these modern electronic digital platforms hasn’t really been a challenge for any Bermuda company that I’m aware of. So, there’s a big advantage.”
Starting Discussions Early, Brokers Advise
Efficient or not, some reinsurance broker representative eyeing hardening market conditions for their customers are advising their clients to start 2021 renewal discussions early.
“As we look ahead to the January 1, 2021 renewals, there is an expectation that renewals will be more complicated and that negotiations will take longer than the norm,” said Lara Mowery, global head of Distribution, in a media statement. “One aspect of this that contributes to the duration of the process is the increased differentiation we have seen in renewal outcomes. We as an industry have continued to become more sophisticated in this respect.”
Nguyen said Aon is pushing really hard for early renewals—”and that means having a COVID conversation before the placement commences, making sure that reinsurers are clear on what’s your approach, what’s in your book, what’s not in your book, before they even get the submission often. At least we’re trying for that,” she said.
Then once the parties are in negotiations, the stress level “really depends on the historical performance of the portfolio and what they’ve been achieving from a rate perspective and limits management perspective in this past year,” she said. “I think that the more open the discussion is, the more balanced the negotiation is,” she added. On the other hand, “the harder it is to kind of get transparency from a reinsurer on what’s causing them challenges, the more tenuous the negotiation’s going to be.”
At Aon, “we’ve done much to engage on every input with reinsurers. We like to have a very detailed and dynamic conversation with the underwriters and their actuaries and their claims folks and make sure we understand what’s motivating you, what’s driving you to your questions or concerns, and really peel back that onion [and] understand and be able to provide them with the information.”
“No doubt there will be very heated negotiations in some cases because there will be differences of opinions on appropriateness of assumptions. But I think that it is still a relatively orderly market. Everybody is a little nervous about the number of transactions that come at 1/1 and whether the reinsurers would be able to juggle it in this environment. I think [now] we’re all quite optimistic that without the travel and without all that stuff that they will do fine to juggle it.”
“That said, even starting the renewals early, adding in these COVID conversations, even if we’re educating in advance, is going to drag things out a bit,” she said. “We’re starting early because things feel like they’re going to take longer.”
Nguyen isn’t anticipating many heated negotiations with reinsurers declaring, “I’m gone, I’m out of here” across the board because primary books are underperforming. “We’re having very dynamic and interactive conversations in most cases” already, she said.
New Business vs. Renewals
Still, reinsurers may have different reactions to new clients in a remote environment than they would have had when they could physically meet with cedents. At least, that’s a message that came across in an article that Dan Malloy, chief executive officer of Third Point Re, penned for Carrier Management titled “Walls Between Life and Work Come Down” in our series about “Leading When the World Restarts” after COVID lockdowns.
“If we don’t have the opportunity to meet new clients face to face and to establish some chemistry, we may have to be less generous in terms we offer and provide ourselves with more contractual protections. We may take [the position] that new clients will need to earn our trust,” he wrote. “This may turn out to be to our benefit—to assess risk without the human element.”
“I certainly heard rumors of the challenges of getting comfortable in a remote environment if you don’t know someone,” Nguyen said, noting that she has seen some similar commentary.
“In general, I think that because there’s so much on the desk of the reinsurers, their attention and focus is on management and maintenance of their incumbent books. There’s a lot going on in those books,” she said. “You had social inflation. You now have COVID. You now have [a] deceleration” of liability claims that may be happening” and social inflation may come back stronger given the pressures of an economic recession on potential plaintiffs and jurors. “Plus wildfires. Plus this, that or the other thing that’s been in the press…”
“Just pile it on. They’ve already got that on their desk,” she said, suggesting some sympathy for reinsurers trying to manage through all of the challenges.
“That being said, we have still placed new deals with new partners who met each other on Webex and have had constructive outcomes. It’s hard to know whether the terms would have been better if they had met each other in person,” she agreed.
During Aon’s virtual renewal season press conference last week, Andy Marcell, CEO of Aon’s Reinsurance Solutions business, addressed the question of whether reinsurers would be more focused on their existing relationships this year than on finding new clients. “I don’t think reinsurers are ever going to walk away from the opportunity to expand their client base, but it has to fit in their overall portfolio dynamics,” he said.
“We have seen established reinsurers raise capital for their balance sheets,” Marcell said. “In talking to those reinsurers about how they will deploy that capital,” he said that he’s learned that “in the main, they are going to target their core client relationships and seek to have more robust relationships—to apply that raised capital to existing clients.
“The questioner is right on. People are going to be looking at their preferred clients and seeking to deploy their capital with them.”
“Does that create complications for cedents and reinsurance brokers? Not particularly,” he said. “We’re well aware of it. We spent a lot of time communicating, particularly via Webex and Google Meet, and we’re having that connectivity with the reinsurers and our clients, and setting up early discussions.”