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rectify the situation by either returning capital to shareholders or by putting it to work in more profitable ways. That is the view of Stuart Shipperlee, part-


R


ner at Litmus Analysis, a consultancy that helps insurers and reinsurers understand credit rat- ings. “Either profitability will have to increase to the point that investors value reinsurers at least at book value or they have to give capital back,” he says. It is not immediately clear why some rein-


surers are valued at present levels. Many rein- surers are clearly outperforming their primary counterparts, yet their valuations remain simi- lar. “Clearly, there is the possibility that inves- tors are worried about the future profitability of the industry,” Shipperlee suggests. A proportion of many reinsurers’ profits


in recent years have been made up of reserve releases – the healthy pricing enjoyed by the industry in the middle part of the decade still bearing fruit today. But that is now coming to an end, exposing reinsurers’ true profitability. “Equally, there


are concerns there are


einsurers that are valued below book value by the stock markets must act to


problems to come,” Shipperlee says. “It could be from US casualty business, which has been under-priced in the primary market, or from the sovereign debt crisis, which could cause problems on the asset side of the balance sheet. Whatever the reasons, investors are not pricing reinsurance stocks in a way that suggests that they consider it an attractive investment.” As this situation persists, Shipperlee believes


reinsurers must act. As a starting point, he sug- gests a focus on more profitable lines. “These tend to be the non-proportional and speciality and they probably don’t need a lot of capital,” he says. “Ironically, giving capital back may be the pressure needed to reduce capacity in the market, enabling reinsurers to increase pricing in more speciality lines and improve their overall profitability profile by shrinking.” Yet


despite book values remaining de-


pressed, Shipperlee also notes that capital levels remain healthy in many parts of the industry, in part thanks to new capital entering it from non-traditional sources. “Some investors coming in are not tra-


ditional equity investors,” he says. “Some are coming in through the fixed income side


25.10.11 TUESDAY


Seek higher profits or return capital, reinsurers are warned


Stuart Shipperlee, Litmus Analysis


through some of the special purpose vehicles which we’ve seen. “From a fixed income point of view there


are some attractions to this marketplace – it is a non-correlated asset. But as far as the equity investment side is concerned, a valuation at 70 or 80 percent of book value lasting for more than a couple of years would be very unusual. I believe something has to change.”


Zurich’s emergence as reinsurance hub has improved service T


he emergence of Zurich as a reinsurance hub has made the continental reinsurance


market more transparent and accommodating with many companies stepping up to the mark in terms of attitude and better response times since this market has introduced more competition to the region. That is the view of Kenrick Aldrich, divi-


sional director, treaty reinsurance division at United Insurance Brokers. “Players in the con- tinental market are making themselves very easy to deal with and very accommodating,” he says adding that the emergence of Zurich has had a role to play in this change. “We visit Zurich a lot. You can cover every


Kenrick Aldrich, United Insurance Brokers


reinsurer there within a 10-15 minute walk – very similar to the City of London. The companies in Zurich are also very good at ex- plaining exactly what they can offer. There is no smoke and mirrors and this makes it a very


8 | INTELLIGENT INSURER —BADEN-BADEN TODAY | Tuesday October 25 2011


useful place to visit.” Aldrich says he can get a quotation from


the Zurich market as quickly as he can out of the London market. And he claims the level of service provided in Zurich now is sometimes superior to that in London. “Sometimes the London market doesn’t


feel the pressing need to respond very quickly whereas the Europeans do and are terribly good at providing good service,” he says. This is in part, he says, thanks to technological


advances allowing business to be offered to mar- kets around the world at the touch of a button. It is just as straightforward for UIB to offer business to a client in Zurich as it is in London, he says. “It is a kind of globalisation and given that


they are on approximately the same time as us, it is as easy to offer business to Zurich as it is to Lloyd’s and the response time from Zurich is better.”


www.intelligentinsurer.com


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