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Edition 3 - 2012 — Bulletin of Catlin Re Switzerland

On Track How Catlin Re progresses in a demanding environment


02 RELE ASE  Edition 3 - 2012 | Catlin Re Switzerland

Editorial

Dear Reader Welcome to this year’s final edition of RELEASE. As our second full year of operational history is drawing to a close, this is a good opportunity to reflect on our achievements so far. In 2012 we almost tripled our team to more than 40 employees by year-end. We expanded our market presence with offices in Cologne, Madrid and Rome, deepened our product offerings and wrote sizable new business in our European core markets. Our portfolio’s size and diversification have strengthened significantly over the past twelve months. In all modesty, we can claim that clients support our business model. Our article on pages 4 and 5 offers you an analysis of what we think is the basis for our progress. Along with steady business growth comes the need for clear structures enabling an effective delegation of responsibilities. In August Markus Eugster was appointed Chief Underwriting Officer of Catlin Re Switzerland. Please join me in wishing Markus all the best in his enlarged role. He shares some of his views and thoughts on page 6.

In the midst of the year-end renewals we would also like to present some of our views on near-term reinsurance market developments and challenges. And, last but not least, we are proud to share with you a pioneering initiative of Catlin Group in investigating the impact of climate change on the Great Barrier Reef, a project where the Group teamed up with Google. We hope you will enjoy the reading and – as always – look forward to your feedback on Catlin Re Switzerland and our RELEASE.

Yours sincerely

Peter Schmidt CEO


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The Catlin Seaview Survey The Catlin Group engages in a ground-breaking research project, the Catlin Seaview Survey, which investigates the impact of climate change on the Great Barrier Reef, the world’s largest coral reef off the Australian east coast.

The scientific data gathered by the Catlin Seaview Survey will strengthen the understanding of how climate change and other environmental changes are likely to affect ocean ecosystems like the Great Barrier Reef. Google, a founding partner of the survey, is specifically developing a new feature on Panoramio, its tool which links photos to locations, so that the 360-degree panoramic images can be uploaded and made available to internet viewers. Approximately 50’000 panoramas from the survey will eventually be accessible on Google Earth and Google Maps. The Global Change Institute at the University of Queensland, Australia, supports the project as a scientific partner. The non-profit organisation Underwater Earth is in charge of organising and executing the survey. In September 2012 the Catlin Seaview Survey kickedoff. This pioneering research investigates and documents the composition and health of the Australian Great Barrier Reef. The survey also aims to raise public awareness of potential changes to our planet’s oceans and underwater ecosystems, by allowing everyone to engage with the survey via the internet. Explaining the Group’s involvement, Stephen Catlin, Chief Executive of Catlin Group, said: “Experts need reliable data to make conclusions about the impact of climate and environmental changes on our oceans and our planet as a whole. As an insurer, we offer our clients protection against many types of risks, so it is natural that we should play a leading role in sponsoring research to learn more about the risks of tomorrow.” Coral reefs provide food and income for approximately 500 million people worldwide. They underpin local businesses and commercial enterprises including fishing, tourism and the pharmaceutical industry. Reef systems also provide protection to coastlines and their communities by dissipating the power of the oceans, and, of course, they are well known as a risk indicator, providing an early warning system to the changes taking place across the planet. However, due to changing environmental conditions, coral reefs face an uncertain future.

The Catlin Seaview Survey includes three separate surveys: a shallow reef survey, a deep-water survey and a mega-fauna survey. Combined, these surveys will provide a baseline assessment of the composition, biodiversity and wellbeing of the Great Barrier Reef.

For further information on the Catlin Seaview survey please visit: www.catlinseaviewsurvey.com


04 RELE ASE  Edition 3 - 2012 | Catlin Re Switzerland

How Catlin Re built its footprint in Europe Since inception in late 2010 Catlin Re Switzerland has established a distinct franchise in its target markets. This success is all the more remarkable as the European reinsurance market has been facing major challenges. While the impact of macroeconomic and financial market trends on our business has been widely discussed, a host of industry-specific phenomena also influence the buying behaviour of cedants and thus, ultimately, the structure of reinsurance markets and providers. For a start, natural catastrophe models have swept all before them, ushering in a more transparent, homogeneous and analytical approach to risks, especially in the US and Europe. Consequently, the relevant reinsurance markets are consolidating and becoming more competitive. Secondly, as a result of changes to supervisory and solvency regimes – primarily Solvency II, of course, although improved risk-based capital approaches are also playing their part – there has been an international drive towards standardisation of capital management and broader use of internal capital models, both in the primary and reinsurance arena. This increasing sophistication of market players is also raising the competitive bar, especially for reinsurers.

“Primary insurers have become increasingly conscious of the need to diversify their reinsurance relationships and seek strategic advice from reinsurers.” Thirdly, there has been no let-up in the trend towards consolidation among primary insurers, reinsurers and brokers. On the client side, reinsurance purchasing is increasingly organised centrally and the risks are often bundled in complex programmes. The aggregate cession rate is ultimately set to fall as better-capitalised and diversified cedants with higher capital efficiency are buying less reinsurance cover. Reinsurers operating in Europe are particularly exposed to these challenges. Insurance penetration, i.e. premium income as a percentage of gross national product, has been declining on the “old” continent since the turn of the century as premium growth is

lagging behind overall economic growth. There is correspondingly strong pressure on cedants to lower their reinsurance costs, not least by increasing their retentions. This weak growth has further accelerated the rate of consolidation in European insurance. The top 5 and the top 6 to 10 providers respectively have seen their market share increase in the order of 4 to 5 percentage points since the beginning of the 21st century. The firms in the top 11 to 15 bracket have been able to hold their own but smaller providers have lost considerable ground. Over the same period, the number of insurers operating in the European Union has declined from about 5,100 to some 4,700. Cedants’ changing needs These challenging conditions are forcing cedants to pay closer attention to the cost efficiency and fitness for the purpose of their reinsurance programmes; this increased scrutiny often takes the form of greater centralisation of reinsurance purchasing and greater opportunism. Market dynamics in Europe are in any case being accompanied by greater segmentation of cedants, and here a broad distinction can be drawn between local, regional and global reinsurance purchasers. The scope and type (proportional versus non-proportional) and the organisation (centralised versus decentralised purchasing) of these clients’ reinsurance needs vary – in some cases very substantially indeed.


Catlin Re in Europe – some success factors Catlin Re Switzerland was licensed by FINMA, the Swiss financial market supervisory authority, in 2010. The main purpose of the company is to offer reinsurance cover to continental European cedants, thereby reinforcing the global diversification of the Catlin Group. The company has a capital base of approximately USD 1.1 billion and an “A” financial strength rating from Standard & Poor’s and AM Best. Catlin’s European reinsurance operation is in the third year of existence and employs over 40 staff at offices in Zurich, Rome, Madrid and Cologne. We also benefit from important group services predominantly in London. Building up long-term, reliable and robust client relationships are entirely congruent with the preferences of the continental European market, and here our company is positioning itself as a multi-line property and casualty reinsurer (both in proportional and nonproportional business) that is capable of pricing and structuring reinsurance programmes. The company is targetting important shares in treaty business on this basis. We have identified three phases in achieving our strategic goals. Phase 1, naturally enough, involved the foundation of the firm; staff had to be recruited, the firm had to be positioned and advertised, and our multi-line competence had to be established and meshed with a network of reliable client relationships. We were able to complete this phase at the close of 2011, i.e. a year after launching business operations. Catlin Re Switzerland is currently in phase 2, which is all about laying the foundation for sustainable growth. Our technical underwriting capabilities and associated services have been broadened to further this aim and help us attract new clients. We have increased our share of business with existing clients and have added further products and solutions to the palette of services on offer. We are also looking in detail at what solutions the firm can offer both regional and global cedants against the backdrop of long-term, mutually beneficial client relationships. This in turn requires

us to build-up portfolio skills that go beyond a purely line-orientated approach. The transition to portfolio competence (phase 3), i.e. the ability to act as a target client’s preferred reinsurer, is to be completed in the next 3 to 5 years. For this to happen, we must work towards acquiring a reputation for expertise and sound judgement and prove our ability to underwrite all lines and products, including complex (peak and bundled) risks and comprehensive international programmes. To achieve this goal, our underwriting competence, which for Catlin has traditionally been deployed very close to the client, must be buttressed by centralised functions that enhance our sectoral expertise with the ability to evaluate all of a client’s risks from a portfolio perspective.

“Our aim is to manage the company by offering a broad spectrum of services and pursuing a holistic approach to the client’s portfolio.” Conclusions Despite all the cyclical and structural challenges facing the European (re)insurance industry, opportunities for new arrivals to the market remain: a dramatic consolidation, resulting in oligopolistic market structures, is not anticipated on either the primary or the reinsurance side of the equation. So the market potential is there, and to exploit it, Catlin Re Switzerland is deploying its “natural” advantages: agility, flexibility and quick response times. We are confident we can establish ourselves as an additional provider on the European reinsurance market and fill a niche for increased diversification, bespoke services and long-term, non-opportunistic reinsurance relationships.

Peter Schmidt, CEO, Catlin Re Switzerland, Zurich


06 RELE ASE  Edition 3 - 2012 | Catlin Re Switzerland

Appointed to CUO In August 2012 Markus Eugster became Chief Underwriting Officer of Catlin Re Switzerland. In an interview with RELEASE, Markus explains his priorities.

“We want Catlin Re Switzerland to become the reinsurance provider of choice for our clients,” says Markus A. Eugster, the firm’s newly appointed Chief Underwriting Officer. “Cedants shall turn to Catlin Re as their preferred multi-class property, casualty and specialty reinsurer. We aim to become one of their most valued and trusted reinsurers – the one, our clients call upon as a reliable partner.” At Catlin Re we put the underwriter first. He maintains the client relationship, knows best what his cedants require and is able to support them with reinsurance expertise and market knowledge. Our strategy rests on a combination of capabilities that our underwriters have to demonstrate: expertise – profound knowledge of markets and products across all lines, skills – the ability to quickly grasp opportunities, develop solutions and consult clients on a whole account basis, and finally, we need team-players. Since Catlin Re is driven by front-end decisions, we vest our underwriters with authority. In return, they are responsible to work tightly with their teams (actuarial, other lines) to assure that decisions are sound and robust and that responses are equally quick and reliable.”

The successful execution of our strategy depends upon our team. Processes, guidelines, tick- or checkboxes are meant to support their expertise – we will always put substance over form! We have a steadily growing premium volume, are engaged with over 270 clients and participate in over 600 proportional and non-proportional treaty programmes. We aim to steadily expand our shares with existing clients, win new ones and enter further geographies and lines. However, the expansion of our portfolio will progress smoothly – in a consistent and balanced fashion.” Catlin Group has consistently put profitability before growth. Disciplined underwriting, portfolio diversification, capital preservation and flexibility always come first. At Catlin Re we achieve this objective by steadily steering our portfolio towards a higher return and allocating our capacity accordingly. We take a wholeaccount view and work with our clients to manage our margins.”

About Markus Eugster Prior to joining Catlin in 2010, Markus was the Principal of MA Eugster Consulting and held various international mandates. Between 1998 and 2009, Markus was a Managing Director at Swiss Re and assumed different senior executive functions. Markus started his financial market career at Credit Suisse working in commercial banking in Latin America, Zurich and New York. He holds a Ph.D. in International Affairs and Political Economy and a M.A. in International Affairs and Governance, both from the University of St. Gallen in Switzerland.


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Ready for the year-end renewals The first two years of our operational history have been quite encouraging. Catlin Re Switzerland enters its third year-end renewals with confidence.

Catlin Re Switzerland attended this year’s Monte Carlo and Baden-Baden gatherings with strong delegations. In general, the discussions with clients and business partners focused on general market conditions as well as our company-specific approach to the forthcoming renewals. At the Rendez-vous de Septembre the team of Catlin Re underwriters from Zurich and Rome met with more than 150 clients and business partners. Baden-Baden, by contrast, was dedicated to more specific discussions aimed at reviewing existing as well as discussing new reinsurance programmes. Overall, there seemed to be a consensus among cedants and reinsurers that as reinsurance capacity is abundantly available average rates are low and, given the persistent low interest rate environment, need to rise. In addition, as economic growth in mature markets remains sluggish, both cedants and reinsurers have to maintain a tight grip on their costs. In the individual meetings, the economic uncertainties, in particular the Eurozone crisis and lessons from last year’s unprecedented string of natural catastrophes in Asia/Pacific set the tone for the meetings. Catlin’s position remains very solid. The Group showed a

strong performance in the first half of this year and views underwriting conditions as favourable with rates continuing to rise in its key lines of business. Given the low interest rate environment, the Group stresses its fundamentals of disciplined underwriting, portfolio diversification, capital preservation and flexibility to continue delivering a favourable attritional loss ratio. Catlin Re Switzerland has built a well-diversified book of business since its inception two years ago. Going forward we will deploy our capital to further build and expand our existing client relationships whilst establishing new ones, provided conditions are commensurate with our underwriting guidelines. We intend to grow our presence in relationship driven markets like Germany, France and Eastern Europe and deepen our product offerings. To further balance our book, we aim to take on more property risk, maintain our current position in casualty and specialty. This line initially grew fastest because a complete underwriting team was taken on board and because we write credit risk for the entire Group on a global basis.


Catlin Re Switzerland – Your reinsurer of choice • Catlin Re Switzerland operates as Catlin’s multi-line non-life reinsurance hub for the Continental European markets • Financial strength rating 'A' by S&P and AM Best, approximately USD 1.1 billion of capital • Established and licensed by FINMA since 2010 • Teams are based in Zurich, Rome, Madrid and Cologne • Continental Europe focus: property, casualty, and specialty • Global focus: trade credit, surety, and political risk reinsurance • Fully fledged to quote and structure proportional and non-proportional reinsurance programs as well as facultative offerings • Over 270 client relationships contribute to Catlin’s 2012 premium volume

Rest 32% Italy 26%

Premiums per region 2012

Germany 10%

Japan 4% NL France 4% UK 9% 5% China Spain 6% 5%

Peter Schmidt

Markus A.  Eugster

Catlin Re Switzerland

Chief Executive Officer Phone +41 43 268 84 30 peter.schmidt@catlin.com

Chief Underwriting Officer Phone +41 43 268 23 75 markus.eugster@catlin.com

Feldeggstrasse 4 | 8008 Zurich Switzerland Phone +41 43 268 34 00

France & Benelux

Casualty

Jérôme Domenichini

Daniel Gantner

Senior Underwriter | Zurich Phone +41 43 268 34 57 jerome.domenichini@catlin.com

Underwriting Director | Zurich Phone +41 43 268 34 28 daniel.gantner@catlin.com

Germany

Credit

Ortwin Kroeninger

Martin Hochstrasser

Jean-Pierre Portmann

Senior Underwriter | Cologne Phone +49 221 1688 7378 ortwin.kroeninger@catlin.com

Underwriting Director | Zurich Phone +41 43 268 23 76 martin.hochstrasser@catlin.com

Underwriting Director | Zurich Phone +41 43 268 84 33 jean-pierre.portmann@catlin.com

Italy

Property

Antonio Fiengo

Christophe Chandler

Branch Manager | Rome Phone +39 0632 898 751 antonio.fiengo@catlin.com

Underwriting Director | Zurich Phone +41 43 268 84 31 christophe.chandler@catlin.com

Spain & Portugal

Specialty

Julio Sáez

Toni Vukadinovic

Branch Manager | Madrid Phone +34 67 073 99 02 julio.saez@catlin.com

Underwriting Director | Zurich Phone +41 43 268 34 53 toni.vukadinovic@catlin.com

Impressum: Published by Catlin Re Switzerland / Concept & Design by agor ag, Zurich / Edited by Dr. Schanz, Alms & Company, Zurich


Catlin Re Release 3-2012