Rates must rise if reinsurers are to survive financial crisis
Reinsurance rates must firm to keep the industry well placed this year, reinsurance experts told last week’s Insurance Council of Australia (ICA) Regulatory Update seminar.
Swiss Re’s Head of Australia and NZ Russell Higginbotham says the reinsurance industry is well placed in the current financial turmoil – but he “doesn’t want to paint too rosy a picture”.
“It is a very difficult market at the moment,” he said. “We see growth as being very sluggish, from 10% growth in 2007 to just 5% in 2008.
“We do expect prices to firm up this year. There is less supply and increasing demand. Capital might be a bit more difficult.”
David Rush, GM Policy Development at the Australian Prudential Regulation Authority (APRA), says insurers have often relied on the capital on reinsurers’ balance sheets but it is no longer that simple.
Zurich Financial Services’ Reinsurance Manager Phil Couchman believes reinsurance has actually been enhanced in the global financial crisis, as other forms of capital are harder to get.
“We will have to see what happens to reinsurers’ balance sheets,” he said. “There could be some downgrading as a consequence. Where there may be a problem in the future is where there is a big catastrophe and reinsurers are looking to raise capital. These are very uncertain times.”
He says insurers will have to become more risk-averse and look more carefully at ratings and not just accept them at face value.
Mr Higginbotham says Swiss Re makes sure it holds a lot of capital above its rating, but if that capital did diminish it would do everything it could to keep that rating.
Swiss Re’s Head of Australia and NZ Russell Higginbotham says the reinsurance industry is well placed in the current financial turmoil – but he “doesn’t want to paint too rosy a picture”.
“It is a very difficult market at the moment,” he said. “We see growth as being very sluggish, from 10% growth in 2007 to just 5% in 2008.
“We do expect prices to firm up this year. There is less supply and increasing demand. Capital might be a bit more difficult.”
David Rush, GM Policy Development at the Australian Prudential Regulation Authority (APRA), says insurers have often relied on the capital on reinsurers’ balance sheets but it is no longer that simple.
Zurich Financial Services’ Reinsurance Manager Phil Couchman believes reinsurance has actually been enhanced in the global financial crisis, as other forms of capital are harder to get.
“We will have to see what happens to reinsurers’ balance sheets,” he said. “There could be some downgrading as a consequence. Where there may be a problem in the future is where there is a big catastrophe and reinsurers are looking to raise capital. These are very uncertain times.”
He says insurers will have to become more risk-averse and look more carefully at ratings and not just accept them at face value.
Mr Higginbotham says Swiss Re makes sure it holds a lot of capital above its rating, but if that capital did diminish it would do everything it could to keep that rating.