Monte Carlo preview: The calm after the storm

Last year was typified by political uprising and unrest, including riots in the UK and the Arab Spring in the Middle East.

This year has been calmer. With the exception of the Syrian crisis and the intermittent trouble in Egypt, and despite the short-term stagnation following the events of 2011, the Middle East remains attractive to insurers and will certainly be a major topic of discussion at the Monte Carlo conference.

The democratisation of Arab Spring countries is likely to present new opportunities for insurers as trade barriers are lifted, and those with an interest in the region will be wondering how to get on the bandwagon.

Tranquil year
In terms of catastrophes, aside from some US crop losses and the potential impact of Hurricane Isaac, 2012 has been somewhat tranquil; there have been no other billion dollar-plus losses, meaning it is unlikely to be discussed at length by delegates.

This is a far cry from 2011's floods in Australia and earthquakes in New Zealand and Japan. The rate rises and changes to insurance and reinsurance modelling following these events are likely to be of more interest in Monte Carlo.

The finances speak for themselves: Lloyd's of London's profit of £2.2bn in 2010 contrasts starkly with its pre-tax deficit of £516m for 2011, and there may be some debate around how insurers plan for future large losses in unexpected, typically invulnerable, geographical locations.

Naturally, last year's events resulted in the arrival of long-anticipated global rate rises, and brokers and underwriters alike are keen to get in on the action.

So, what are the hitches? The industry is in the midst of economic gloom, and it won't improve soon. With no real increase in demand, are prices likely to soften? What delegates will want to know is whether the recent rate improvements can be maintained long term.

There is no shortage of private equity firms looking to enter the insurance and reinsurance arena but, with prices driven by supply and demand, how can insurers charge more?

With interest rates low across the globe, there are limited areas offering a good return on investment. This suggests that capital may outweigh demand - this year's lull in losses hasn't squeezed capacity.

This is especially true in some emerging markets. Brazil and Indonesia, for example, are in soft cycles as insurers chase the opportunities in these nations. Will other emerging markets follow suit?

How insurers maintain their discipline to ensure that the industry does not slip back into further years of a soft market will be key. Going back will impair balance sheets.

Tempting opportunity
On the activity front, insurers and brokers seem a tempting opportunity for private equity companies.

Will investment and subsequent mergers and acquisitions become a regular feature? Or is it more likely that the stagnant global economy, perpetual changing of regulation and other reforms provide too many barriers?

Globally, regulation and corporate governance is tightening its grip on the industry - Standard Chartered's recent £220m penalty is the latest in a long list of increasingly frequent unprecedented global fines, each figure more eye-watering than the last.

The lack of events this year, combined with lack of investment opportunity globally, means that the most popular word on the agenda at this year's Monte Carlo will be stagnation: of M&A activity; of catastrophe losses in 2012; and, most importantly, the possibility of further rate rises the industry desires.

Toby Esser
CEO, Cooper Gay Swett & Crawford