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The cycle has “disappeared,” says SCOR’s Denis Kessler

11th September 2018 - Author: Matt Sheehan

Denis Kessler, Chairman and Chief Executive Officer (CEO) of French reinsurance giant SCOR, has said that it is his “strong conviction” that the reinsurance pricing cycle has “disappeared” and is unlikely to return.

Dennis Kessler, SCORSpeaking during a debate on the third day of the Reinsurance Rendezvous event in Monte Carlo, Kessler acknowledged that “This time one year ago in Monte Carlo we were expecting a very sharp rate increase – all of us.”

However, the market has not hardened to the extent that it had done historically following heavy catastrophe loss years, with rate increases generally very subdued and limited to certain lines and geographies.

“I think we were wrong one year ago to wait for price increases,” Kessler continued, adding: “Maybe there is no more cycle, this I strongly believe.”

He also claimed that the current market is far away from what he termed an ‘equilibrium price’ due to factors such as excess capital, low interest rates, and the “incredible amount of liquidity.”

“We also expected one year ago, that capital investors in ILS would be extremely shy and not reload the instruments,” said Kessler. “On the contrary, there is more ILS today than there was one year ago, and they did reinvest massively in those ILS funds.”

He explained that the market previously had a high level of viscosity, in which companies had to deal with “delays, gaps, sticky prices, sticky capital movements.”

“Today, you can raise capital easily,” he added. “You can create an ILS fund in one hour, you can issue a cat bond in maybe two or three weeks.”

Given the influx of ILS capital, Kessler claimed price increases would only be likely again in the event of an unmodeled catastrophe loss far larger than the series of hurricanes in 2017.

“We have improved risk management tremendously, so we know that in the space of probability, there was a possibility of three hurricanes of this size,” Kessler explained. “Of course it was at the tail, but it was not out of the probability space.”

“So, maybe an awful pandemic in the life insurance space worldwide or a worldwide cyber collapse would be the event where finally we would see price increases,” he said.

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