Thursday, March 20, 2014

Updated--Huge Amounts of Capital Want to Fund The Reinsurance, Cat Bond Businesses

Update below.
Original Post:
This is a phase in the cycle where Warren Buffett can be expected to comment on Berkshire's General Re pulling back from the market.
From Artemis:
Munich Re: Reinsurance market competitive as capital spills over
The world’s largest reinsurance firm, Munich Re, expects conditions in the global reinsurance market will remain competitive in 2014. It also acknowledges the spreading influence of alternative capital as it spills outside of pure catastrophe business.

Munich Re’s profit target for 2014 is €3 billion, down on the €3.3 billion the firm achieved in 2013. That result in 2013 was the third best annual profit in Munich Re’s history, but challenges in the market and economy in 2014 make it unlikely to be repeated.

CEO of Munich Re Nikolaus von Bomhard commented on the firms 2013 performance; “The result for 2013 is an indication of how we have positioned ourselves competitively – we have strategically prepared Munich Re for foreseeable challenges which we can now tackle from a position of strength.”

The challenges Munich Re feels it faces in the coming years, which it believes it is well positioned to deal with, include the continued low-interest-rate environment which makes asset side performance more difficult, the increasing competition in the global reinsurance market driven by new entrants, capital markets capacity and well-capitalised traditional reinsurer competitors as well as changing demand on the primary insurance side of its business....MORE
Errmmm, yes. It appears I am a half-step behind an 83-year old.
From Artemis, Mar. 15:

Warren Buffett: U.S. catastrophe rates too low for Berkshire Hathaway
Warren Buffett, chairman of diversified investment, insurance and reinsurance firm Berkshire Hathaway, said yesterday that his firm has pulled back from U.S. catastrophe reinsurance business as the rates are no longer attractive.

Warren Buffett was being interviewed by CNBC for its Squawkbox programme yesterda, Friday 14th March, when he said that Berkshire Hathaway has pulled back on its U.S. catastrophe re/insurance business as the rates are no longer felt to be commensurate with the risks.

Premiums have now fallen too far for Berkshire Hathaway to continue deploying its capacity into U.S. catastrophe premiums which is a clear sign that the well-capitalised traditional insurance and reinsurance market, combined with continued inflows and interest from capital markets investors, has truly disrupted incumbents.

When Buffett talks about catastrophe insurance at Berkshire Hathaway he is typically also referring to catastrophe reinsurance, as when speaking he generally does not distinguish between the two. Both Berkshire Hathaway and GenRe have been gradually pulling back on insuring and reinsuring U.S. property catastrophe premiums for a number of years, but Buffett said yesterday that U.S. catastrophe exposure has been all but eliminated from the groups underwriting.

Buffett explained to CNBC; “We actually in the United States have almost eliminated our catastrophe insurance business.” ...MORE