Now is not a good time to stop looking around
APRA’s announcement late last week that it’s happy with the way Australia’s insurance industry has withstood the rigours of the global financial crisis is welcome news. The regulator is the most cautious of organisations, and such confidence is significant.
In fact, APRA Chairman John Laker sees the impact of local weather disasters as more of a problem right now. And he’s quite happy to let APRA take some of the kudos for running a tight prudential ship with the insurers.
We should be grateful, even if it did take the collapse of HIH to make the Federal Government understand the value of strong prudential oversight. Now insurance companies in many countries are in big trouble thanks to their exposures to bad investments and even worse risks.
In the US alone, asset writedowns and hurricane claims have raised expectations that by the time the industry has reported its third-quarter results, a $US48 billion ($71.38 billion) reduction in surplus capital will have been recorded. As the reports in our International section over the past couple of weeks demonstrate, no US insurer is doing very well. No one seems to have much more idea about a solution other than raising premiums, which all that surplus capital has allowed to fall to unsustainable levels.
While most US insurers avoided the sort of business that brought AIG undone, the very soft market, falling share values and asset writedowns have provided a perfect storm.
The problem is much the same in Europe, where the major reinsurers and insurers have all announced disappointing results and resolved to raise premiums.
Estimates of the ultimate cost to the global insurance industry range up to $US7 trillion ($10.41 trillion).
Aon Global Chairman Dennis Mahoney told a recent Sydney conference that insurers now face mass asset depletion and an increasing shortage of capital.
He says insurance will get more expensive as insurers concentrate on the immediate challenge of staying profitable. And he believes the crisis will bring forward a string of mergers and acquisitions as companies seek to spread their footprint in local and foreign markets.
With the downturn already upon us and with it a likely reduced demand for insurance, local companies might feel this isn’t the time to be brave.
Then again, strategic growth is the best alternative if organic growth is going to stall. Premiums are now on the rise, which will help insurers to remain profitable. But actual market growth will require retention of a competitive instinct. And that’s where M&A activity starts to look more attractive – at all levels of the industry.
And even as the market struggles to raise profits and continue growing in a depressed market, the problems that were around before this crisis hit will still have to be addressed.
No one will be able to simply wait for better times to come around before dealing with challenges like succession planning and recruitment management, global warming, underinsurance, taxes and the need for more responsive insurance products.
The old saying that in times of adversity there are always great opportunities is as real now as it has ever been. The next couple of years will be fascinating as the shakeout that began 10 years ago continues.
In fact, APRA Chairman John Laker sees the impact of local weather disasters as more of a problem right now. And he’s quite happy to let APRA take some of the kudos for running a tight prudential ship with the insurers.
We should be grateful, even if it did take the collapse of HIH to make the Federal Government understand the value of strong prudential oversight. Now insurance companies in many countries are in big trouble thanks to their exposures to bad investments and even worse risks.
In the US alone, asset writedowns and hurricane claims have raised expectations that by the time the industry has reported its third-quarter results, a $US48 billion ($71.38 billion) reduction in surplus capital will have been recorded. As the reports in our International section over the past couple of weeks demonstrate, no US insurer is doing very well. No one seems to have much more idea about a solution other than raising premiums, which all that surplus capital has allowed to fall to unsustainable levels.
While most US insurers avoided the sort of business that brought AIG undone, the very soft market, falling share values and asset writedowns have provided a perfect storm.
The problem is much the same in Europe, where the major reinsurers and insurers have all announced disappointing results and resolved to raise premiums.
Estimates of the ultimate cost to the global insurance industry range up to $US7 trillion ($10.41 trillion).
Aon Global Chairman Dennis Mahoney told a recent Sydney conference that insurers now face mass asset depletion and an increasing shortage of capital.
He says insurance will get more expensive as insurers concentrate on the immediate challenge of staying profitable. And he believes the crisis will bring forward a string of mergers and acquisitions as companies seek to spread their footprint in local and foreign markets.
With the downturn already upon us and with it a likely reduced demand for insurance, local companies might feel this isn’t the time to be brave.
Then again, strategic growth is the best alternative if organic growth is going to stall. Premiums are now on the rise, which will help insurers to remain profitable. But actual market growth will require retention of a competitive instinct. And that’s where M&A activity starts to look more attractive – at all levels of the industry.
And even as the market struggles to raise profits and continue growing in a depressed market, the problems that were around before this crisis hit will still have to be addressed.
No one will be able to simply wait for better times to come around before dealing with challenges like succession planning and recruitment management, global warming, underinsurance, taxes and the need for more responsive insurance products.
The old saying that in times of adversity there are always great opportunities is as real now as it has ever been. The next couple of years will be fascinating as the shakeout that began 10 years ago continues.