Ahead of the Monte Carlo Rendez-Vous Re-Insurance sat down with Tokio Millennium Re’s chief underwriting officer Brian Secrett to hear his talking points for the conference.

A few carriers have complained that rate increases in the wake of last year’s catastrophes were not as meaningful as expected. What can reinsurers do to address the perceived pricing imbalance?

Renewals are sometimes like eating at a main street pizza restaurant, you go in thinking you’ll get something different, but always end up eating the same thing.

In simple economics price change is a function of supply and demand. Demand for catastrophe capital is growing, but at a slower pace than in previous decades – privatised government schemes often being the source of new catastrophe risk – there were few signs of insurers looking for a lot more limit. Supply growth came largely from the capital markets, now permanent fixtures in reinsurance risk financing.

Changes in behavior need not always be a function of simple economics, and it seems to me that not enough pain has been felt in the reinsurance community for leaders to insist on prices which enable capital to be retained to pay for the ‘big one’. One last point, clearly reserve redundancies are shrinking.

This could be the source of the next market hardening.

Other than pricing, what will be the biggest challenge for the industry in the next 12 months and what can be done to address it?

There are many possible challenges, from macro-economic shifts, to interpreting the impact of climate change, to changing our business models in response to the evolution of our products.

But I would suggest that technology and innovation may have an unexpected impact, whether it be in the engineering of our (re)insurance products – for example insuring sharing economy risks – or in processes used to build and distribute the product – for example transferring more and different risk to the capital markets. In terms of engineering the product I learnt a few things at recent meetings with clients.

Where there’s mystery there’s margin, as the mystery of some of our business disappears with the growing availability of data, it is likely that large scale insurers and reinsurers will face competition from players of any size, since they will all have access to the same data.

All the same, we also saw evidence that insurance industry professionals are the new wave of entrepreneurs – we should be enabling the industry, not disrupting it.

Obviously, one factor that has affected pricing is the influx of capacity from capital markets. Does that provide an opportunity as well as a threat and, if so, what should carriers be doing to embrace that?

First, I want to be clear – the growing presence of new means of risk transfer directly to the capital markets is far from ‘a bad thing’.

The capital markets bear a great deal of (re)insurers’ risk – and always have – in the past, this has largely been through equity investment in insurers and reinsurers. Today permanent directly risk bearing capital (so-called ‘alternative capital’) supports in excess of 20 percent – sometimes well in excess – of certain segments of the risk insurers wish to reinsure.

Direct interaction with these partners can enable reinsurers to extend their product range and capacity; it’s a valuable source of mutual learning, helping to foster innovation in traditional as well as non-traditional methods of risk transfer.

 Where will the greatest opportunities for the industry lie over the next 12 months?

Much has been said of the gap in coverage and the opportunity that this presents. The greatest opportunity lies in addressing the gap, not simply in the knowledge of its existence.

At TMR I’ve seen our underwriters presented with new risk. What differentiates us is our willingness to pursue the opportunity to the end, to turn the gap into a product we can share with our clients while our competitors have sometimes seemed less willing to step away from the orthodox.

The opportunity is in the action, not the knowledge