We hope a more equitable sharing of the risk

While the 50es rendez-vous de September come close, Jacques Aigrain, Chairman of Swiss Re, explains the "Echos" why reinsurers are resolutely committed to the path of discipline. Resolved commitment bar the road to any widespread decline in reinsurance rates in upcoming treaty renewals. His group, world leader in reinsurance with $ 28 billion of premiums, of which 36 in life and health, has a battle horse, the reduction of the volatility of its results and its capital intensity, and a conviction: the sector is at its beginnings in the reduction of costs. The group, which announced the removal of 2,000 positions (17 of its workforce), expects more than $ 300 million of synergies from the integration of Insurance Solutions, the acquisition was concluded on 9 June.

What is your feeling on the appointment of September

Economic realism seems to predominate among all participants, including brokers. Although climatic incidents are, for the moment, quite moderate, I see anyone expect a lack of discipline and hope that disaster risks lend themselves to tariff cuts. The fundamental element is structural developments since 2004 but which accelerated year last to requirements increased in terms of capital required for the more volatile risks on the part of regulators and rating agencies.

What are the consequences for Swiss Re

The adjustments are very modest. Our "economic model risk", adopted in November 2004, is based on the same probability of occurrence of disasters than the Standard & Poor's model.

Do you think that some reinsurers may be tempted to relax this "discipline" at length at Monte Carlo

Reinsurers can not afford to not properly pay the capital required for the climate and catastrophic risks. For other types of risks (industrial, civil liability), discipline translates a little differently because the requirements of the regulators and agencies have not fundamentally changed. But all the actors in the sector have in mind very negative experiences of the past, including civil liability in the United States. As all of the managers of today, I am, have spent several years to pay the pots broken, we have no reason to forget what it means.

It will suffice to explain that reinsurers feel the urgent need to show satisfactory profitability

No company in the sector cannot take the risk of disappointing financial markets if it wants to have a chance to rebound easily. Investors have demonstrated great patience and supported the sector. In return, they now expect a strict discipline in underwriting, management of the balance sheet and active management of equity (dividends, share repurchases...). This is the best defence against the daemon of the competitive pressures down. It happens in reality in our sector the same phenomenon in banking during the 1990s industry, when it had redeployed its energy to adopt much more for capital allocation models. At the time, the banks had a return on equity (RoE) less than 10 percent the level where today there are reinsurers and insurers. Today, they emit 20 to 25 of RoE.

Is reinsurance able to operate this mutation

Can be transformed in a voluntary and sustainable manner reinsurance in a profitable industry. We're not a tragic basis it generates considerable absolute calibrates but the efficiency of capital is poor. Moreover, the insurance as a whole does not attacked the problem of its cost structure. It is penalized by heavy organisations, particularly in terms of legal entities.

Your business model and your position of number one world give you they a step ahead of these developments

We have, particularly since the integration of the activities of General Electric Insurance Solutions, diversification of risk categories, branches and regions which is outstanding. Probably the highest in the industry for a pure reinsurer. This should lead to greater efficiency in our home but also afford to expand our offer of transfer of risk, damage both in life and health.

You feel free, yet, to transfer some risks disaster reduction in financial markets. Is this not a negation of the profession of reinsurer

One of the most original elements of our model is the active use of the financial markets to reduce the volatility of our results. We will continue to offer our customers the fundamental service that represents the transfer of climate risks but nothing prevents us to optimize the capital cost of these risks through the depth and diversity of the financial market.

What is your position on the sensitive subject of motor civil responsibility in France

We fully analyze the causes of our problems the developments are negative on the past due to the inflation of the compensation paid to victims but there is not likely that this improves. Therefore, a substantial increase in rates is necessary. Insurers fund less volatile risks and leave extreme cases to reinsurers. We hope a more equitable sharing of the risk.

And on terrorism

Solutions through the Gareat mechanism, which we are the first reinsurer, are good but incomplete since they are limited in the damage insurance. The image of what exists in the Netherlands, we would like that the State also gives its guarantee for life insurance. This anomaly should be considered in the future but we are ready to be patient. In the meantime, we will not put our customers at odds, and we will participate in the 2007 renewals.