Willis Re President Paddy Jago Addresses Mutual and Co-operative Insurers at the MORO Conference
Paris, May 4, 2012 – Paddy Jago, President of Willis Re, the reinsurance arm of Willis Group
Holdings (NYSE:WSH), the global insurance broker, yesterday morning addressed delegates from 57 organisations at the Meeting
of Reinsurance Officials (MORO), the biannual conference organised by the International Cooperative and Mutual
Insurance Federation (ICMIF).
Speaking about the current state of the reinsurance market, Jago focussed on the implications for mutual and
co-operative insurers of external factors such as the economic environment, regulatory changes, model change and the
impact of recent catastrophic losses.
The mutual and co-operative insurance sector is the 9th largest economy in the world, and ICMIF members
share of the market grew to 26% in 2010 from 22.5% in 2007.
Jago explained that despite a very difficult economic environment since 2008, the insurance and reinsurance industry has
survived admirably. Addressing mutual and co-operative insurers at the conference, he said: “Insurance and reinsurance weathered
the financial crisis and we haven’t trumpeted that enough. Unlike the banks, we carried on lending
our capital which kept things moving and kept people safe.”
Discussing the market cycle Jago acknowledged that all the external factors he discussed would affect the market
to some degree, however, he questioned whether the fungible nature of today’s reinsurance capital (ILS funds,
hedge funds, sidecars and catastrophe bonds) will shorten a hard market cycle.
“Capital is now able to rapidly enter the market in anticipation of increasing rates, rather than as
a reaction to them”, he said. “The market is hardening but at a gentle rate that
suggests that the current trend may last a bit longer. However, absent a major event I
would expect the January renewals to be flat.”
This new capital does, however, offer insurers, alternative ways of purchasing reinsurance.
“There is new capital in the wings, much of it being deployed in cat bonds and other
financial vehicles perhaps considered outside the traditional arena” said Jago.
“But some of these alternative risk transfer vehicles need to be considered carefully. If a certain parachute
only opened seven out of ten times would you put jump out of a plane with
it on? Some insurers use these vehicles for credit diversification – they don’t like all their
eggs in the traditional market, but this type of diversification often has basic risk and whereas
it might suit the larger capitalised company that has significant financial clout, mutual companies should be
cautious when examining the product given the potential miss factor which for them could prove terminal.”
“Reinsurance – surrogate capital – can be the difference between survival & extinction for mutual insurers" he
said, “The tail of large catastrophes is always bigger than we think, and it’s at the
upper end of your reinsurance where the potential capital problems really lie. For a group who
rely on their reinsurance for survival, you need to ask the question – have we got
it right at the top end?”
Jago talked of the ever present threat of competition within a mutual’s backyard.
“You (mutuals) are product focussed and know your market, but the competition will fight your knowledge with
their price” he said. Jago asserted that reinsurance should not restrict the coverage offered by mutuals,
and argued that because a mutual’s targets and goals were so very different than the ‘for
profit’ competition, reinsurers needed to adopt an approach that suited them.
“Mutuals are so commendable” he said. “The team ethos and club environment, which is often born out
of adversity, that you are there to serve your policyholders, resonates. “
“Willis Re set up a mutual division specifically to better understand and to take care of the
needs of our mutual and co-operative clients. Our commitment to ICMIF as one their supporting members
underlines that commitment. The best way for us to anticipate the challenges faced by mutual, and
to work with them to find solutions through reinsurance is undoubtedly to maintain a close relationship
with ICMIF and their members.”
The regulatory environment facing mutual insurers will be discussed at the upcoming Solvency II seminar, hosted by
ICMIF supporting members to be held at the Willis building in London on 24 May. The one day seminar explores
how mutuals can maximize their capital flexibility within the constraints of the standard model, and benefit from the Solvency II process.
About Willis Re
One of the world’s leading reinsurance brokers, Willis Re is known for its world-class analytic capabilities, which
it combines with its capital markets and reinsurance expertise in a seamless,integrated offering that helps clients
increase the value of their businesses. Willis Re serves the risk management and risk transfer needs
of a diverse, global client base that includes all of the world's top insurance and reinsurance
carriers as well as national catastrophe schemes in many countries around the world. The broker’s global
team of experts offers services and advice that help clients make better reinsurance decisions, access worldwide
capital markets and negotiate optimum terms. For more information, visit www.willisre.com.
Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers
professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public
entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries,
with a global team of approximately 17,000 employees serving clients in virtually every part of the
world. Additional information on Willis may be found at www.willis.com.