This page contains a Flash digital edition of a book.
While it is currently accepted wisdom that diversification is a good way for


both insurers and reinsurers to spread the risks on their books, reinsurers thinking of diversifying should carefully consider the implications of what they are doing, according to John Andre, group vice president, property and casualty ratings at A.M. Best.


“Diversification needs to make sense,” he said. “Boards need to have


focused and experienced teams who can execute this properly.” Because of the current difficult market conditions, Andre believes that


‘building’ is probably going to be tricky, so that those who want to diversify would be better advised to do so through acquisition.


However, he believes that diversification is not for everyone and is


‘very case-specific’. There are upfront costs to consider, the risk of distracting yourself from your core business, and also the fact that many people overestimate the benefits of acquisition and expansion anyway, argues Andre.


“It is never an automatic path to a ratings upgrade,” he said. “A.M. Best will give ratings implications of diversifying on a case-by-case basis.”


Diversification can of course have its benefits, he said. “It can provide


the opportunity to reduce volatility.” There is the option to expand into non-correlating lines of business


and to spread risk geographically, but this could also lead to a reinsurer’s diversifying into a geographical catastrophe, he pointed out.


location that is then struck by a


36 | INTELLIGENT INSURER | October 2011


©iStockphoto.com/Sean_Warren


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60