Risk managers are more concerned about the security of the insurance industry than rising premiums at present
Risk managers are more concerned about the security of the insurance industry than rising premiums at present because, despite calls for higher rates from insurers, so far there is little evidence of upward movement on prices. The limitations of credit ratings also worry AIRMIC members.
‘I think there is still a question mark over the stability of insurance,’ commented AIRMIC insurance steering group chair Kip Berkeley-Herring, who moderated a breakfast seminar organised by AIRMIC in November to discuss the state of the market. ‘It remains a fragile looking market, and we have become wary about security ratings as we have seen their fragility. It means we place increased reliance on brokers to provide up to date intelligence.’
AIRMIC organised the event with partners JLT and AXA Corporate Solutions. The panel members were Greg Carter, managing director, insurance, for the rating agency Fitch; Emmanuel Nivet, chief executive of AXA Corporate Solutions UK, and Chris Tabbitt, property-casualty team leader for the global risks services division of JLT.
Greg Carter told the seminar that rating agencies cannot predict every collapse in security. ‘We depend on what management tells us and on publicly disclosed information. If you can fool the auditors and the regulators, then you can fool the rating agencies as well, for we depend on these people,’ he says.
“We depend on what management tells us and on publicly
disclosed information
The UK insurance industry, especially non-life, is regarded as generally well capitalised and fairly secure financially however, partly because it is regulated to protect policyholders. As a result, it is comparatively stable, although not immune from the turmoil, he said.
Fitch sees a negative outlook for all major European markets, which means that over the next 12-24 months it expects to downgrade the credit ratings of more companies than it increases. More reassuringly, though, Carter said the changes are expected to be ‘ticks, not whole categories’. AIRMIC technical director Paul Hopkin commented that AIRMIC members need to understand how changes in insurer credit ratings fit their organisation’s risk appetite. One question for companies is how many insurers to have participating on large programmes; using several increases the risk of a failure, but reduces the impact if it happens. Chris Tabbitt argued that insurance buyers should make sure their brokers have a contingency plan ‘should the worst happen’.
Despite pressure on some balance sheets and heavy losses from Hurricane Ike in September, the immediate effect will be fewer and smaller reductions on renewals, rather than rate increases, JLT’s Chris Tabbitt believes. ‘While insurers are talking about a hardening market, I’d say at the moment it is stabilising,’ he said.
Even so, the effect of asset erosion and more expensive capital are likely to feed through gradually into insurers’ rating models and emerge in pressure for higher premiums in the second half of next year and in 2010, according to Tabbitt. He says corporate buyers should be prepared to act strategically and have good evidence to support requests for rate reductions.
