Reinsurance Pricing Falls as Supply Dramatically Outstrips Demand: Analyst Josh Stirling Discusses His Outlook for the Insurance Sector with The Wall Street Transcript

Wall Street Transcript

67 WALL STREET, New York - June 24, 2014 - The Wall Street Transcript has just published its Insurance Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Low Profitability and Low Interest Rates - Commercial Line Brokers and Underwriters - Consolidation Trends - Emerging Market Expansion - Analysis Of Personal, Commercial & Reinsurance Subsectors

Companies include: Lloyds Banking Group plc (LYG), American International Group, (AIG), ACE Limited (ACE), Progressive Corp. (PGR), Procter & Gamble Co. (PG), Allstate Corp. (ALL), The Travelers Companies, Inc. (TRV), The Chubb Corporation (CB) and many more.

In the following excerpt from the Insurance Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What about reinsurance?

Mr. Stirling: Reinsurance is an interesting subsector in and of itself; it's a financing business for the underlying businesses, and so life reinsurers do well when life insurers do well, and P&C reinsurers do well when P&C companies do well. The important thing though is what's going on in reinsurance is different and much more a sector-specific story, not just about the sort of global capital flows and investors' appetite for risk.

More important for reinsurance than the underlying economic recovery and resulting shift from P&C to life is the broad interest by alternative investors, hedge funds and pension funds in directly entering the reinsurance business for a variety of reasons.

Now reinsurance, historically, especially property catastrophe reinsurance, is insurance for insurance companies to insure them against things like earthquakes, hurricanes and tornados. The margins in that business historically were very high, and the business itself is almost by definition incredibly uncorrelated to rest of the broader market. There is no direct relationship between hurricanes and stock prices, or interest rates or anything like that, and many investors like the inherent diversification from taking risk in property cat.

So in that context, what's happened over the past five or 10 years is that there were many clever financial people that have been trying to converge the capital markets more directly with the reinsurance market, so that investors could benefit from the diversification benefit and the higher margins available from directly writing reinsurance. This has been a trend that's been slowly building, but over the past year or two there has been an explosion in the amount of interest among, again, pension funds and hedge funds in directly writing reinsurance...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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