P&C industry on an “unsustainable” financial path: NICC reinsurance panel

The global property and casualty insurance industry faces an unsustainable financial future if it does not soon consider rate increases, a panel of reinsurers told delegates attending the National Insurance Conference of Canada (NICC) in Vancouver on Sept. 26.
The panelists observed that global reinsurers are conversationally discussing catastrophe price increases of between 5% and 15% for the upcoming renewal period.
Still, many have been slow to increase pricing in other lines, perpetuating an “unsustainable” financial path in light of a bad year for insurers generally.
“It’s a little bit perplexing as to how far the industry needs to sink in terms of its earnings or its return on equity before you start to get some sense of action around adequate pricing,” said panelist Marty Becker, president and CEO of Alterra Capital Holdings Ltd.
The panel itemized the high costs associated with earthquakes in Japan and New Zealand, as well as storm events in the United States and the wildfire in Canada that cost $700 million in insured damages.
Becker said globally the industry started the year overcapitalized at between $80 billion and $100 billion. It has since lost $70 billion in the first nine months of the year.
Nevertheless, he noted, there’s no growth sign or appreciable price strengthening across the private lines.
“The question in my mind is: What is the compilation of conditions that finally tilts it toward change?” Becker said.
“We’re not making any investment income. There’s no place to put your money today to get any kind of reasonable return.
“Accident year combined ratios on virtually any product line are approaching 100% or above it.
“We’re not earning any kind of an investor-enticing ROE. If we were, these stocks would not all be trading at 70% or 75% or 80% of book value
“So when are we going to have the collective will to basically earn a reasonable return – not even a serious return – for our product and our product lines? Because the path we are going on is unsustainable.”
A member of the audience said analysts have been describing the 2011 catastrophes as “earnings events,” meaning the hit is on companies’ earnings rather than on their bottom lines. Becker agreed with the analysts, but added those days of “earning events” are almost over.
“We’re on the cusp,” he said. “And any even of any real magnitude from here probably is not an earnings event. It’s probably a balance sheet event.”
Henry Klecan, president and CEO of The Americas-SCOR, likened the situation to reinsurers now starting to draw from their savings accounts rather than from their chequing accounts.