5 4 3 2 1 QUARTERLY
US INTEREST RATES, GOVERNMENT SECURITIES, TREASURY BILLS US INTEREST RATES, GOVERNMENT SECURITIES, GOVERNMENT BONDS
0 2006 5 4 3 2 1 0 2006 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
0 1 2 3 4 5 6
2006 2007 2008 2009 2010 2011 Source of data The International Monetary Fund This view point is echoed by Seitz, who believes that it is the responsibility
of underwriters on both the insurance and reinsurance side to exercise discipline and work together to improve the situation.
“The most important issue now is to achieve a turn of the market and
start to develop reasonable and risk-adequate pricing at the primary as well as the reinsurance level,” Seitz says. “Rate movement in an upwards direction is needed in many classes of business and geographic markets.”
Seitz believes that the negative effects of the low interest environment
will start to hit companies the hardest at the end of this year. Reinsurers must begin work to mitigate the adverse affects immediately if they are to remain sustainable.
0 1 2 3 4 5 6
2006 2007 2008 2009 2010 2011 “In 2010, there were still some write-ups and capital gains from older bond
portfolios with higher interest yields,” he says. “That is over now and at the end of 2011, the low level of interest rates will have manifested themselves.”
But while there appears to a consensus that better underwriting discipline
is needed, it has also been claimed that the actions of certain underwriters do not correlate with the calls for increases in rates.
Despite the best efforts of chief executives to talk rates up, it would
appear that some underwriters are not listening to the messages from their bosses, says Steve Mantle, chief executive officer of Lloyd’s brokers THB.
“There is often a difference between an external statement and internal
instruction,” he says. “In an environment where there is no clarity, if the market is a hardening market, and you carry the instruction to the underwriting floor, then you are looking at a market share and loss of book issue.
“I don’t find it surprising because statements made by chief executives
are, for the large part, just suggesting a direction. When you get to the shop floor, it can become a case of kissing a risk goodbye for the sake of, for example, five points of margin on a result.”
Kaj Ahlmann, global head of strategy and chairman of the global advisory council at Deutsche Insurance Asset Management, agrees, saying that underwriters need to take more notice of what their CEOs are saying about rates.
“You hear talk about the need for rate rises coming from the CEO’s office, who has the best of intentions, but it is crucial that it then filters down to the underwriters, who really need to understand how they should execute it,” he says.
While it is more important than ever for reinsurers to increase their
profits from underwriting, steps can, and are, being taken by some reinsurers who are willing to take more risk on to their asset sheet, argues Randy Brown, managing director of Deutsche Insurance Asset Management.
“The return from the portfolio, which historically carried many of the
reinsurers, is just not there,” he says. “What we’re seeing is a natural tension, because on the one hand, reinsurers know that they need to drive more earnings out of the asset side, so they are exploring alternatives to core fixed income.
“On the other side, they are worried about regulatory capital increases
under Solvency II, along with capital hits on a forward basis, due to the ultimate rise in rates and the levered affect which that has on their surplus. This results in tension, where reinsurers want and need to diversify, but
November 2011 | INTELLIGENT INSURER | 33
PERCENT
PERCENT
PERCENT
PERCENT
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