Traditionally, the cycle is one of those elusive parts of the re/insurance sector. No sooner is there a hike in premiums and a hoist in terms, than its ephemeral nature is emphasised and the whole downturn begins. Indeed, it could be argued that the nature of both the business and the reporting therewith means that it is impossible to grasp exactly where in the cycle the business is positioned at any one point in time; it could only be assessed in an historical perspective.
In this issue of Global Reinsurance, we have invited several noted academics to provide their view of the re/insurance cycle. Does it really exist?
What are the factors influencing the cycle? This, of course, leads to the question of whether the cycle is in some way controllable or whether it has a life of its own. This question is, in fact, one which only the industry can address, and the findings of the reported studies suggest that different strategies for managing the cycle are required in different markets. The recent renewals saw rates coming down in international property business, and certain casualty lines were off from their high at the 2002/2003 renewal. However, different lines saw different falls, and some lines, anecdotally at least, are still supposed to be at last year's level. Nevertheless, the traditional response of 'bring on the capacity' is unlikely to do the market any favours in the current back-year environment.
The problems that are stacking up from prior year under-reserving refuse to go away. In the middle of January, XL Capital announced it was taking a pre-tax reserve charge of $694m because of an increase in claims in the third quarter resulting from business underwritten between 1997 and 2001. Of course, XL Capital is not alone in taking this sort of action, but it is increasingly raising questions over the reliability of actuarial reports on re/insurers' exposures. Towards the end of last year, the rating agencies - which themselves have been somewhat under fire for issuing downgrades way after the damage has been done - turned their weapons on the actuarial community, suggesting they had "an abysmal track record" when it came to signing off reserves. The actuaries have riposted that "recent adverse events have caused losses that exceed reasonable expectations", but with many looking for a fall guy to blame for the parlous state of parts of the market, this spat could run for some time to come.
The recent events at Italian food giant Parmalat have proved that corporate governance procedures are not all they're cracked up to be in certain sectors. With Parmalat somewhat uncomfortably echoing the Enron fiasco, there are signs that the international re/insurance market will find itself shouldering some of the cost of the collapse. Even before the end of last year, US life insurers were suggesting that they were exposed to Parmalat to the tune of hundreds of millions through their investment portfolios.
Those that divested before the final nail was hammered in must now be breathing a sigh of relief, but there could still be pain for the general insurance market in the form of professional advisors' errors and omissions coverage. With accountancy firm Deloitte currently suing the Bank of England over the 1991 collapse of the Bank of Credit & Commerce International (BCCI), it looks like the professional liability sector is going to be kept on its toes for some time to come.
Much of the re/insurance business now pivots on quick and easy access to information, a requirement which can become something of a problem in these days of international business travel. London market broker Windsor has addressed this need by adopting new technology in the form of the BlackBerry. Despite its somewhat pastoral name, this is a dream of a boy's toy, which doubles as a useful business innovation. Looking like a PDA but acting like a PC, the BlackBerry allows the user to access email including attachments from almost anywhere in the world. It does away with the hassles of trying to dial in to the home office email system through a less-than-state-of-the-art hotel line, and means that the user can deal with documents on a palm-sized device whenever it suits. It is small, unobtrusive and much easier to handle on a train or plane than a laptop, and for information hungry businesses such as Global Reinsurance proved an effective addition.
RECENT BREAKING NEWS
Some of the latest news items to appear on the GR website include:
- St Paul rating watch to evolving after reserving charge
- European insurance sector losses $400bn
- Mark Elborne to join ERC
- Zurich to merge European entities into single body
- Reinsurers maintain discipline in 2003/4 renewals
- Aspen to set up new US property reinsurance team
- JLT reorganises senior management and US operations
- XL expects reserve charge to hit Q4 results
- Ratings updates provided as they happen.
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