News


25.10.11 TUESDAY


A tough time to be a re/insurance boss I


With so many challenges facing the industry right now, who would want to be running a re/insurance company, asks Kaj Ahlmann.


nflation is the biggest challenge facing the re/insurance industry going forward, says Kaj Ahlmann, chairman of the global advisory board


for insurance asset management at Deutsche Asset Management. But he notes that other concerns also lurk in the wings and acknowledges it is a tough time to be the boss of a re/insurance company. “You simply can’t get the investment yields you previously enjoyed,


you are being pushed by the soft cycle on the underwriting side and you have had a poor year in terms of cat losses,” he says. “At the same time, investment committees are watching the financial markets with real con- cern and saying that they don’t want to take risks on the asset side of the business, only on the liability side. It really isn’t an easy time.” He believes the threat posed by inflation is a significant concern and one


that could materialise soon. “The industry must try and understand how ex- actly inflation will impact their coverage, exposures and portfolio,” he says. The potential danger should not be underestimated, Ahlmann comments. On the underwriting side, Ahlmann says that managers must start mak-


ing some tough choices on business. “They understand what the technical rate needs to be and concerns arise when rates lower. But they need to decide whether to lose the business or to hang on for another year.” It will be a difficult decision to take, he acknowledges, particularly considering the troubled financial environment. And he foresees little change in rates. “There will be very little movement on the primary side, coupled with only slight tightening on reinsurance pricing,” he says. He notes that the typical explanation for soft pricing tends to be that


companies are overcapitalised. “But companies are only overcapitalised until they are undercapitalised. Given the risks out there, we need to look at business on a more long-term basis,” he says. He believes pricing should reflect the inherent risks rather than those stages of the cycle in which the industry find itself, Ahlmann says.


“You simply can’t get the investment yields you previously enjoyed, you are being pushed by the soft cycle on the underwriting side and you have had a poor year in terms of cat losses.”


Recent cat losses and changes to the RMS Version 11 wind model


have presented yet further challenges for the industry. He anticipates cat losses will likely continue to trend upwards while the RMS model changes have presented additional challenges although “its full impact and how the rating agencies will view its application is yet to be fully played out”. He adds that under RMS 11 some companies’ exposures have dou-


bled. “This means that there is an ever greater need to understand mod- elled portfolios and exposures,” he says. On the asset side of the business, Ahlmann says serious questions are


being asked by the industry regarding “how to achieve a little more yield” in the troubled investment environment. He says that companies will like- ly have to take on more risk, but that “it is more important than ever in today’s troubled economic environment to fully understand these risks”.


www.intelligentinsurer.com


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Phone/Fax: +371 67752717 Mob. Phone: +371 29175494 Email: j.shvetsova@greenstone-re.eu Website: www.greenstone-re.eu


Kaj Ahlmann, Deutsche Asset Management


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