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French insurers withdrew

The main cause for the lack of national players is the fact that most French insurers have gradually withdrawn from the reinsurance sector since the early 1990s. For François Vilnet, chairman of Apref, the association of professional reinsurers operating in France, the exit of French insurers is part of a worldwide phenomenon that has seen insurance companies reduce their stakes in reinsurers, as reinsurance became a more specialised business with a more volatile risk profile.

There are, however, reasons more specific to the French market. "In the 1980s, French insurers were looking to become more international and having a reinsurer in the group was part of that process, bringing both diversification and information on foreign markets," Vilnet explains. "That is no longer necessary, as the groups have either reached critical mass abroad or have been acquired."

The French reinsurance sector also started to consolidate in the late 1980s. Many players merged, with Scor absorbing about two-thirds of former group reinsurers belonging to insurance companies. This was the case for UAP Re in 1990 and Groupama’s Sorema in 2001.

The last high-profile exit from reinsurance on the French market was, of course, Axa in 2006. The insurance giant sold its Axa Re subsidiary to a group of private equity investors, resulting in the formation of Paris Re.

While it is now technically a Switzerland-based company, Paris Re still has 70% of its staff working in the French capital, where Axa Re was headquartered. While the company’s chief executive, Hans-Peter Gerhardt, does not consider Paris to be a major reinsurance marketplace, he also feels the marketplace concept is becoming increasingly irrelevant.

"I never talk about the Paris market because, in the end, there are only two reinsurers in Paris that are operating globally," Gerhardt says. "To me, that doesn’t really make it a marketplace like Bermuda or London, or increasingly Switzerland."

"Today, the marketplace aspect is becoming less and less relevant," he continues. "With electronic data exchange and the ease of travel, you can be based almost anywhere and access the business, provided you offer both good capital and skilled underwriters. So, whether it is a major marketplace is not the key question, it is whether you as a company are attracting the business. And that is not a marketplace phenomenon."

Yet the promotion of Paris as a reinsurance marketplace is a major goal for Apref, which resulted from the 2005 merger of three reinsurance associations. The organisation moved its annual presentation on the French sector from Paris to Monte Carlo this year, in an attempt to raise its profile.

Vilnet considers that it is important to have a reinsurance marketplace that is active both outwards and inwards. "Reinsurance is becoming increasingly easy to move offshore," he says. "Paris is somewhat in decline compared to growing markets like Bermuda, Ireland or Switzerland.

‘Marketplace benefits’

"These marketplaces are benefiting from flexible regulation, attractive tax regimes, as well as from a marketplace effect: once many players are present, you obtain advantages in terms of size, infrastructure, skills, as well as related businesses, such as consultants."

Apref is working with insurers and the finance ministry to promote measures that would support the development of international insurance and reinsurance professions. This could involve social and fiscal measures to make France a more attractive business. The promotion of training programmes in the field of financial mathematics or actuarial studies is also envisaged, as Paris is considered one of the leaders in the field.

"We consider Paris to be a good entry point for the continental market," Vilnet says. "However, some reinsurers choose Zurich, Brussels or Munich, because all European marketplaces are competing with each other."

One of Apref’s objectives is to obtain from the government a swift transposition of the Reinsurance Directive, as a delay would constitute a handicap for the Paris marketplace. The issue was addressed in a cabinet meeting on September 12 and a law should be voted on by the end of the year.

Another of the association’s main goals is to provide foreign reinsurers operating in France with more transparency in relation to a market whose specificities are not always well understood.

Many compulsory covers

Among them are a large number of compulsory insurance covers, state- sponsored schemes such as the natural disaster indemnification system, or pool-like market solution such as Assuratome for nuclear risks, Assurpol for pollution risks, or Gareat for terrorism.

"There are few countries with as many market solutions to support the insurability of risks," Vilnet says. He believes that the approach stems in large part from cultural reasons, with insurance associations consistently pushing for solutions to be found. He also believes the interventionist approach taken by the French state makes it easier to find public/ private partnerships.

Some of these marketplace schemes are currently under review. The natural disaster indemnification system, for instance, should eventually undergo an overhaul, which could potentially make room for private reinsurers next to CCR, which currently reinsures the scheme with the state’s guarantee.

Vilnet considers that CCR should continue to play a central role in the revised scheme, as it will remain a state-backed system. "However, we believe there is room for reinsurers, which could provide protection in underlying covers," he says, adding that reinsurers will make proposals once a reform is back on the agenda, but that the threshold beyond which CCR will intervene will be set in talks between insurers, the state and CCR.

Gareat, France’s terrorism reinsurance pool, should also see some changes, with the introduction of a tender mechanism for the placement of industrial risks, to provide better price transparency. "The price of terrorism varies according to the geopolitical situation, the recurrence of losses worldwide, and the reinsurers’ appetite for risk," says Vilnet, who is also a vice-president for Gareat. "At the same time, it is difficult to find an objective price, because there is little modelling available in that field. The price is set by the market."

Another specificity of the French market is the obligation for reinsurers to cover the risk of nuclear terrorism, as well as chemical and bacteriological weapons, often considered as uninsurable, following a change in legislation in January 2006. While several reinsurers were reluctant to cover those risks last year, Vilnet says they were easier to place in 2007.

Apref would also like to see the development of market scenarios for major losses from nuclear attacks, within the Solvency II framework. "We believe that insurers are not very aware of nuclear risks, especially in the field of personal insurance," Vilnet explains. "All players must devise scenarios and it isn’t abnormal to see them converge on a market level."

Fabien Buliard