Insurers monitoring sustainability in tough operating environment

“The market is still very soft. We can see lines of business such as liability where the rates are really coming down—it is endless,” Anne Charon, Zurich’s French chief executive officer (CEO), told CRE at the AMRAE event in Lille. Property rates are more stable now, she added. Zurich has gone through a tough time of late, suffering losses in its general insurance business and putting in place an action plan to address past problems. This plan includes reshaping its management team, re-underwriting and exiting underperforming portfolios. Ms Charon explained the company is adapting its underwriting approach to address previous losses and ensure Zurich is able to deliver for risk managers over the long term.hide“We are not interested in growing our top line by double digits if it is not profitable. Our main focus is the long term and long-term service for our customers. Our obsession is around profitability because the market conditions are not favourable to grow due to the competition and external trends that we see. The economic factors, for example, are not favourable at all. So the growth we want to see is around profitability. We aren’t stopping coverage in any lines but we are slowing down in some areas of business and refreshing and reviewing our portfolios. We pay particular attention to some risks that we may have written more freely in previous years,” she said. Fabrice Domange, managing director, Western Europe at AIG Europe, agreed that market conditions were tough for insurers at recent renewals. Falling premium rates have combined with growing costs and low investment returns to put insurers under pressure, he continued. “Renewals in January were very competitive. While business did not move much between insurers, there was a lot of battling,” said Mr Domange. He noted that some casualty general liability programmes saw reductions of 20% to 40%. As rates have fallen for more than a decade, insurers have also had to contend with increased costs and low investment returns, explained Mr Domange. Regulatory and compliance costs have risen significantly, while insurers have had to increase investment in client services, he added. Insurers need to protect balance sheets and ensure long-term profitability for their own good and their clients, said Mr Domange. Consequently, there has to be a limit on rate reductions, he said. “Insurers have a role to be a sort of safety net for their clients so they can focus on their core business model while we are protecting their balance sheet with strong coverage and prevention, but we also have to protect our own insurer balance sheets with a long-term profitability focus,” said Mr Domange. “Conditions are challenging for every insurer. But after 13 years of a soft market, there has to be a limit. AIG pays millions in claims a day and we need to ensure we will, that’s why the expertise and quality of underwriting within AIG is our key strength and focus. There comes a day when insurers say it [rate decreases] needs to stop,” added Mr Domange. Mr Van Santen, who is now chief executive of Allianz Global Corporate & Specialty in France, explained that the insurance industry is under pressure as soft market conditions lead to losses and huge upheaval in the market. He advised risk managers to keep an eye on their carriers and watch out for instability in the market. The commercial insurance industry is undergoing a period of flux, as people, management and businesses change hands. There have been a number of mergers and acquisitions, some of which make strategic sense, noted Mr Van Santen. Others are being driven by a lack of financial resources. Mr Van Santen also pointed out that a number of large insurers are undergoing structural and management changes. For example, investors in AIG are pushing to have the group broken up, while Zurich has headhunted a new chief executive from Generali, leaving the Italian insurer in search of a new leader. French insurer AXA has also recruited a new chief executive for its corporate business. This occurs against the backdrop of competitive market conditions, in which some insurers have suffered losses, noted Mr Van Santen. Zurich has, for example, recently reported big general insurance losses in the second half of 2015. These were primarily caused by several large loss events, including an explosion at the Chinese port city of Tianjin and winter storms and floods in the UK. Risk managers are expressing concern over “instability” in the insurance market, Mr Santen told Commercial Risk Europe. Financial strength and stability are important considerations going forward, he said. Mr Van Santen advised risk managers to prepare for difficult times ahead. “Like the Le Mans 24-hour race, it is not the people who go the fastest that are the winners, but the ones that manage their risks over the whole [race],” he said. He advised risk managers “transferring risk in an unstable environment” to increase monitoring of insurance carriers. “Risk managers need to think about their programmes. I have seen programmes where I find the co-insurers puzzling. For example, there are D&O programmes out there with 30 co-insurers, some of which are names that I have never heard of,” Mr Van Santen said. “You pay a premium today but you may not need the cover from insurers until ten years’ time,” he said.

Insurers monitoring sustainability in tough operating environment

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