Transcript INSURANCE INDUSTRY IN A CHANGING ENVIRONMENT

Company
LOGO
OVERVIEW OF GLOBAL
TRENDS IN REINSURANCE
Presented
By
Mr. Johnnie Wilcox
Managing Director
UNITED AFRICAN INSURANCE BROKERS LTD
At
THE 17TH AFRICAN REINSURANCE FORUM DAKAR
9-11 OCTOBER 2011
SCOPE
• Introduction
• Key Concerns as Reinsurance Brokers
• State of African Insurance/Reinsurance Industry
• Trend Drivers
• Global Trend
• Conclusion & Recommendations
INTRODUCTION
• I am highly honored to be invited to share my views on
the subject with this August gathering.
• Rate of change at the global market place is assuming
a dizzying pace and I believe that recent and not too
recent happenings will have a lot of impact on our
industry and the way we do business.
• The African Insurance and reinsurance industry being
a part of the global market place is going to be affected
by what is going on in the global insurance industry
• My mandate is to look at trends in the insurance
Industry from an African Broker’s viewpoint.
INTRODUCTION
• In looking at the trends, this paper will highlight some
major events responsible for observable trends in the
global reinsurance industry and their implications.
• My conclusions and some recommendations will follow.
KEY CONCERNS AS REINSURANCE
BROKERS
• As a reinsurance broker, part of our overriding concern is
finding the right reinsurance protection for our clients at
the right price
• In this regard our interest in the reinsurance value chain
will include
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Profile and quality of risks our clients bring to the market
Their retention ratios
The capacity available in the market to meet our clients needs
The terms under which Cover is granted to our clients
Improvement in clients service
The timeliness and quality of claims settlement
Growth of the market
Impact of supervision on business practices
Risk management practices by insurers & reinsurers
STATE OF THE AFRICAN INSURANCE
MARKET
• Capital inadequacy resulting in low retentions and
high demand for reinsurance.
• Currently there are rising demands for more
sophisticated covers requiring better capitalized
companies
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As a fall out some countries have embraced recapitalization,
Mergers and Acquisitions (e.g Ghana, Nigeria, Gambia, Kenya to
name a few)
• Lack of capacity and underwriting expertise to
underwrite some classes of business e.g. Oil and
Gas Risks, Aviation and other specialized lines of
business
STATE OF THE AFRICAN INSURANCE
MARKET
• Globalization & Competition from foreign companies
• Basic insurance and reinsurance products on offer.
• Lack of customized insurance solutions to suit local
requirements.
• Overdependence on governments and corporate
clients and the underdevelopment of the individual
clients market
• Weak and unsophisticated supervision (environment
for unethical practices to thrive)
• Many African Countries have weak economies with
resultant low Insurance penetration due to lack of
disposable income, ignorance and inertia (as indicated
in Slide 9)
STATE OF THE AFRICAN INSURANCE
MARKET
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Generally the risks of the continent are good but portfolios are largely
unbalanced
Inadequate pricing;
• Companies compete on price not on service
• The net effect is rate cutting which is now widespread and could
lead to major instability of the insurance markets
Companies are beginning to embrace ICT in service delivery
Alternative Risk Transfer(ART) & Financial Reinsurances not widely
practiced but may be the case with globalization and maturing economies
Reinsurance demands are non-sophisticated. International reinsurers
provide basic covers, capacities and dictate price. Consequently, African
insurers are paying prices disproportionate to their experiences
African insurance companies end up paying higher price for their
Reinsurance requirements even when markets were considered soft.
The African Insurance Industry
– Conditions & Market practice
Primary Insurance:
Low per-capita income and market penetration
Per-capita income (2010, US$)
Insurance market penetration (2010, in %)
50,000
Oceanea
40,000
Africa
30,000
Latin America
20,000
Life
Asia
Non-life
10,000
Europe
0
North America
World
0
1
2
3
4
5
 In sum, catch-up potential for insurance clearly visible – together with high real GDP
growth, this leads to expected strong insurance premium growth
Source: Swiss Re
TREND DRIVERS
Change Drivers that have significantly impacted on current
global insurance and reinsurance business cycle includes;
• Terrorism: September 11 marked a watershed in the history
of insurance – Led to the shortage of supply in Reinsurance
cover and the need for appropriate pricing
• Escalating CAT Losses from Natural Catastrophes all over
the world in 2011. Insured Losses from natural disasters for
2011 half year US$67billion (2010 US$27billion) source: Swiss re
Insured losses (in USD billion, at 2011 prices) source: Swiss re
TREND DRIVERS
• Globalization
• Information Technology
• Improved Risk Management and Governance Practices
• ART & Financial Reinsurance
• Credit & Capital market Crisis
• Commitment of International Association of insurance
supervisors (IAIS) to significant improvement in quality of
supervision.
GLOBAL TRENDS
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Most players deploy IT in service delivery. International
Reinsurers are deploying rating tools in pricing.
The unrelenting Credit and Capital Market Crisis is going to
impact on insurance and reinsurance business in many
ways. Some possible scenarios are examined below:
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Capital base of reinsurers is stable but may contract
if current catastrophic loss trends continues
In the event that Capital base of reinsurers contract
this will probably lead to reduction in reinsurance
capacity especially for catastrophe covers
Reduction on refinancing options available to primary
insurers may stimulate the demand for reinsurance
GLOBAL TRENDS
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Lower capital market returns and decrease in
investment incomes for companies
Decrease in profitability for reinsurers
For Africa any further economic crisis will likely impact
insurance penetration already the world’s lowest
Increased exposures from natural hazards likely to result in
significant increases in individual and catastrophe losses
The above events are likely to result in increase in pricing of
insurance/reinsurance products
Continuous improvement in supervisory oversight as a result
of national development initiatives and the requirement of
IAIS.
Capital base of Reinsurance Companies
worldwide (US$ billions)
500
400
300
200
100
0
2007
2008
2009
2010
Source: Munich Re
At the Reinsurance Rendezvous held in Monte Carlo in
September this year, some of the conclusions reached
were that;
– Despite catastrophic losses and low investment yields
there is still surplus capital in the reinsurance industry
– Reinsurers have managed to weather the current
natural catastrophe losses so far this year
– A constantly changing world requires innovative
solutions from reinsurers in dealing with emerging
risks.
– Reinsurers however need to take actions to improve
profitability
– Rates likely to remain flat.
CONCLUSION & RECOMMENDATIONS
African Reinsurers must get their act together and;
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Recapitalize adequately to enable them play a primary role in
providing capacity for the African continent.
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Improve on their fundamentals and get rated by appropriate
rating agencies
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Invest heavily in human capital development, especially in
the area of specialized risks e.g. Oil & Energy, Aviation
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Invest in the development of customized reinsurance
solutions
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Individual African reinsurance companies cannot take on
these challenges alone – they need to come together and
create a common user service provider in the area of
specialized risks including research and product
development.
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Embrace ICT to upgrade their service delivery to their
markets
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Improve in training for direct underwriters.
CONCLUSION & RECOMMENDATIONS
International Reinsurers should
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Apply differential pricing (taking into consideration the differences in
exposure and experience in pricing covers) – No Continent should
subsidize losses from other region
Play a complementary role in the continent and contribute their quota
to developing the African insurance markets
Direct underwriters should;
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Recapitalize to retain more and only buy reinsurance at the top levels
Embrace ICT in service delivery
Improve on Risk Management and Corporate Governance
Embark on cost optimization through
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Reduce cost of doing business
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Make each line of business pay for itself
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Avoid cash flow underwriting which ultimately could lead to financial ruin
CONCLUSION & RECOMMENDATIONS
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Regulatory Authorities;
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Create enabling environment for insurance companies to grow
and develop
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Encourage companies to explore other methods of Risk
financing other than the traditional Reinsurance
CONCLUSION & RECOMMENDATIONS
Considering all foretold, The African
Insurance Industry should expect fairly
stable rates for 2012 renewals. It is
expected that each market be rated,
taking into account their exposures and
experiences and not penalized for the “sins”
of others
FOOD FOR THOUGHT
THANK YOU FOR YOUR ATTENTION