Watch those accumulations or profits will be damaged: Puls

The vast majority of international insurers have done surprisingly well to deliver reasonable profits to investors during the stubbornly soft and hyper competitive market of the past few years. Admittedly, catastrophic losses have not been particularly high and most insurers and reinsurers in the international market are still boosting their combined ratios and profits with reserve releases, albeit at a slowing pace. The need for AIG and Zurich to post massive reserve additions in the past couple of years does not appear to have signalled a sector-wide reserving bloodbath to rival that seen in the period 2001 to 2004. HDI board member Edgar Puls warned the French and wider risk management community during an interview at the recent AMRAE conference, however, that things could change more rapidly than they would like if insurers do not watch their potentially catastrophic accumulations in key emerging risk areas such as supply chain and cyber. Dr Puls told CRE that Europe’s risk and insurance managers should not allow themselves to become complacent and assume that this market is an easy ride for their risk transfer partners based on another decent set of 2016 full-year results. Insurers need to be more disciplined with their underwriting, risk selection and portfolio mix than ever before, or risk a sudden and potentially dramatic change in fortunes, he said. “In this market, as an international insurer the important point is to properly steer your portfolio. You cannot assume that the experience of the past will provide you with an accurate view into the future. You must be aware that the risk landscape has changed for all kinds of industries,” explained Dr Puls. He said it is important to recognise that the trend of industrial losses is changing and this will have significant consequences. “Twenty-five years ago, there were a lot more smaller losses. Loss prevention and risk analysis has improved a lot during this period, so we should expect a decline in the level of individual losses. But now we face an evolving risk landscape that is characterised by the accumulation of values,” said Dr Puls. “Where in the past there may have been five plants producing the same material and therefore effectively spreading the risk, now there will be one plant and one material. The reliability of this plant will have improved significantly of course, which reduces the attritional losses. But if something happens, as it did in Tianjin for example, then there is a high density of assets at risk,” he added. Another complicating element is globalisation and its impact on supply chains, said Dr Puls. “We have a greater dependence on worldwide supply chains. An incident in any one country can be felt anywhere in the world instantly. Then we have interdependence. Industry 4.0 leads to great IT connectivity and will further reduce attritional losses. But at the same time, this introduces new vulnerabilities such as cyber. This is a risk but also an opportunity for insurers,” he pointed out. To continue to pay the claims of policyholders and deliver profits for investors, insurers need to focus their efforts on what customers really want and invest serious effort into truly understanding customer risk profiles, said the insurer. “You have to take a lot of time to understand client needs and client risks. You have to take time to have a proper conversation. We are very focused on this approach and there is nothing to suggest that we will not hit our mid-term targets,” added Dr Puls.

Watch those accumulations or profits will be damaged: Puls

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