Big reinsurers divided on post-crisis strategy

MONACO (Reuters) - Reinsurers on either side of the Atlantic are divided over what business strategy is best following the financial crisis, as sector valuations plumb long-term depths.

European reinsurers are overhauling their business models, while counterparts in the United States and Bermuda are maintaining their pre-crisis course, said consultancy PWC in a report based on interviews with 18 reinsurance chief executives and presidents.

The difference may reflect the business mix on each side of the Atlantic and looming regulatory changes in Europe, as new rules governing risk and capital management known as Solvency II which come into effect from 2013, PWC said.

The consultancy released its report to coincide with the annual powwow of global property and casualty (P&C) reinsurers, that brings together Europe's Munich Re MUVGn.DE, Swiss Re RUKN.VX, Hannover Re HNRGn.DE and Scor SCOR.PA, along with Berkshire Hathaway BRKa.N, Bermuda's Partner Re PRE.N, Everest Re RE.N and XL Capital XL.N.

The majority of European reinsurers have started making big changes to their strategy, PWC said.

“There is a focus on strong operating cashflow production, combining growth and profitability across P&C and life,” PWC quoted one of the CEOs as saying.

Shareholders were also pushing for tighter controls on underwriting and asset management, with reinsurers sharpening their focus on asset diversification, the consultancy said.

Even marginal business is being more keenly reviewed to ensure it earns adequate return on equity, PWC quoted one executive as saying.

Reinsurers act as a financial backstop to insurance companies, helping to pay for big claims in return for part of insurers’ premiums. The sector and the insurance industry in as a whole came through the financial crisis well, compared with banking cousins.

But declining reinsurance prices, low investment returns, nagging fears about the sector’s exposure to sovereign debt and hurricane damage, on top of tighter capital rules, have conspired to keep reinsurers out of favor with investors.

The property and casualty sector is trading at a price-to-book ratio below 0.9, more than two standard deviations below its 20-year average, estimates specialist reinsurance broker Guy Carpenter, part of Marsh and McLennan MMC.N.

Reporting by Jonathan Gould; Editing by David Holmes