Transcript Слайд 1 - Unity Re Ltd.

Crisis Appearance in Reinsurance
Development: Former Soviet Union
Dmitry GARMASH
Deputy Managing director, PhD
Unity Re Ltd.
III International conference
«Insurance in Central Asia», Almaty, Kazakhstan, 19-20 March 2009
International market before 2008…
Situation and tendencies:
• soft market
• enough re- and retro capacity
• high business growth rates (7-15% annually in the average)
• active new investment capital  new market players
• active growth of investments and M&A + geographical expansion
• key investment goal – long-term prospective development
• active & significant investment compensation of technical/underwriting results
…and beyond 2008
• double impact: cycle phaze + investment collapse  both assets and
liabilities of (re)insurers are affected
• investment & technical losses  outflow of investors  narrowing of
available capacity, esp. retro
• stake of active technical correction of results  rise of re- and retro cover
price by 5-25% av.
• active redistribution of business development strategies + potential
movements in and among echelons of international reinsurers
• stake on short-term prospective development
• need for new approach to market regulation
• need for new approach to ratings
…and beyond 2008
2008 among the last 10 years happened to be:
• the 4th as per the amount of insured losses
• the 3rd as per the number of nature disasters
• average effect of Ike & Gustav claims on reinsurers’ assets: - 1,5-6,5%
• average effect of financial markets dynamics & investment result on
reinsurers’ assets: - 5-30%
Some results:
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ING Group – about 1B euro loss for 2008
Swiss Re – net loss of about 0.86 billion CHF for 2008
Munich Re – profits fall about 2,5 times
AIG – 60 billion USD loss for 4Q 2008 = world maximum since 2002 (Time
Warner – 54 billion USD)
Former USSR market
World reinsurance premium distribution:
26%
56%
3%
9%
2%
4%
Source: Swiss Re - Sigma
• Total insurance premium (2007) - 4 trillion USD, non-life segment – about
1,6 trillion USD.
• Total reinsurance NPW (2007) – 168 billion USD (9,8% rise)
Source: International Insurance Fact Book; Standard & Poors
Russian & CIS before 2008…
• Relatively high economic growth rates  growth of insurance & reinsurance
sectors (average rate of 20-30% annually)
• Key engines for (re)insurance – investment oriented sectors: mortgages &
real estate, consumer credits, construction & development
• Formation of ‘middle class’ in society as a factor of growth development
• Active increase of foreign participation – investments, M&A
• Soft reinsurance market + significant non-price competition
• Premium growth rates much higher than claims growath rates  fuzzy cycle
dynamics & phazing  acceptable aggregate loss ratio (25-40%)
• Stake of western reinsurance treaty security with excessive capacity
• Major business growth factor – economy and market growth thereselves
(good performance mainly depends on reliable customer attracting policy)
Russia & CIS before 2008…
Country
Number of
insurance
(reinsurance)
companies
Insurance
premium
non-life,
USD
Inward
reinsurance
premium,
USD
Out-ward
reinsurance
premium,
USD
Russia
857 (29)
29,6 billion
2,536 billion
2,2 billion
Ukraine
446 (1)
3,6 billion
1 billion
1,27 billion
Kazakhstan
41 (0)
1,2 billion
130 million
510 million
Azerbaijan
30 (1)
175 million
n/a
n/a
Uzbekistan
27 (1)
56 million
4,8 million
22 million
Tajikistan
15 (0)
27,5 million
24 thousand
18,5 million
Kyrgyzstan
14 (0)
5 million
n/a
n/a
Source: Asia Insurance Review; Forinsurer.com; FSIS of RF; Orien Insurance; RP News.
…and beyond 2008
Reinsurance sector – “downstream”-direction: mediated, smoothed, buffered
effect of crisis  uncertainty for period & scales of effect
Reinsurance
Insurance
Industrial,
commercial, banking
sectors
Common predictions:
• fall of premiums and slowdown of development
• decrease in number of market players caused by closing business,
bankruptcies and M&A
• tough competition among & selection of professional staff
• key survival remedy – struggle for clients, market place & development of
new business niches & strategies
Change of benchmarks
Market
position
Assets
Capitalization
Change in business environment
Markets
• New niches sources by rising demand for alternative capacity
• Stake on ‘soft’ niches
• Stake on reliable cooperation & own audit and evaluation of
partners
Cedants
• Rising role of R/I in backing insurer’s stability  additional demand
+ reconsideration of retentions/limits policies
• Increasing number of markets in security lists to decrease
individual credit risk exposure of cedant
Brokers
• Global increase of brokers’ role as distribution channel – lower
acquisition costs, attracting various-scale businesses, regional
clients, alternative capacity
Competition &
New players
• Growth of price competition + softening of alternative markets
• Селекция игроков за счет ухода и M&A
Regulatories &
legislation
• Strengthening & restructurisation of state influence to (re)
insurance sector
Capital & rating
• Rise of qualitative requirements to capital & rating
• Rise of demand for international rating
• More tough conditions for rating & capital modelling
Change in key points of analysis
Market position
Clients’ field cover; speed of reaction; capacity; rating
Management
Professional selection of staff; corporate unity; ERM
Corporate strategy
Intensifying development; optimization & rationalization
Investments,
liquidity, financial
mechanism
Tough control of accounts receivable; quality of
investments & assets; conservative strategy
Capitalization
Tough control of reserves adequacy; retro cover &
additional counterparty selection
Change in rating approach
• new trend – not just an evaluation but a full-size reengineering tool!
• integral attribute & competitive advantage
• demand for rating gets higher – opportunities of obtaining get lowe due to
crisis affecting the key rating factors
• crisis  reconsideration of approaches & evaluations, models & qualitative
methods
• 43 000 entities rated around the world – in Russia России just 84; in CIS –
just about 110
• Forecast for 2008-09: more 45-60 companies WOULD HAVE obtained
international rating
• Number of ratings in Russia for 2007 = number of ratings for 1998-2003 =
39
• (re) insurance companies with international ratings = 15 (Russia) + 5 (CIS)
Change in market challenges
• different crisis nature to other world (credit crisis burdened by overall
economy overheating)
• dumping as a key marketing tool  rise of losses + final burden is on
reinsurer!
• “extensification” of development (blowing up the portfolio without enough
prudent risk selection and whole book enhancement)
• no market barriers for poor risks
• rise of fraud claims inflow & severity
• rise of accounts receivable  receivables management as one of the key
tools to be employed with a company during crisis!
• excessive number of market players
• strengthening of roles of major international reinsurers
• back of reciprocity business basics
• more tight binding to world loss ratios, trends, cycle
THANKS FOR YOUR ATTENTION!
Unity Re Ltd
Moscow, Russian Federation
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