“ People are talking about the inevitability of investment income going down and therefore just how essential underwriting profits are going to be.”
they are also concerned because although everyone feels that there is excess capital in the market now, they don’t think it will be there on a forward basis.”
Given that there is little sign of this situation changing, Toby Esser,
group chief executive of Cooper Gay Swett & Crawford, believes that everybody has to diversify in terms of their investments.
“I don’t think that anyone would say that they consider those investments
to be risky, whether they be real estate or through corporate bonds,” he says. “They will try to be conservative about it, but having said that, in the past, for some of the investments this did not turn out to be the case.
“From our perspective, we are not interested in taking those kind of
risks, but I think perhaps insurers and reinsurers will look at it a little differently and probably have to right now.”
Esser also acknowledges that this is an issue that is permeating the industry far deeper than just the insurers and reinsurers, but is also affecting brokers too.
“No insurer or reinsurer can sit back and make money on interest any 34 | INTELLIGENT INSURER | November 2011
more: they need to have good combined ratios,” he says. “However, this is affecting brokers as well, who have traditionally made a reasonable return on interest rates, but there are no brokers making a lot of money from investment income right now, so it is significant to us all.”
Whether it is an insurer, reinsurer or broker, it is clear that a company
will have to try and work both sides of its business in order to survive, says Nick Dranchak, senior financial analyst at A.M. Best.
“Companies need to get as much yield from the asset side of their balance sheet as possible, potentially having some portion of their investments in alternative type investments, whether those be equities or hedge funds for example,” he says. “This allows you to juice your yield a little bit by being creative.
“On the liabilities side of the balance sheet, try getting creative and going into places where you haven’t looked before to try and maximise your underwriting platforms. If you can find some niche business where the rates are still hard enough then you can perhaps make an underwriting profit, although you might be spending some resources doing some cost- benefit analysis and marketing to get into that area.”
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