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Some of the property and casualty sector''s top executives said their industry weathered the financial storm of 2008 very well, but the effects of the crisis will linger through 2009 as capital constraints limit underwriting options.
Speaking at the annual Property/Casualty Insurance Joint Industry Forum in New York, Charles Kavitsky, president and chief executive of Allianz of America, said the industry has had a “double whammy” in 2008, between heavy catastrophe losses and the financial market meltdown.
“I think we’ve (as an industry) done very admirably, given the situation,” he said.
Franklin Montross, chairman and CEO of General Reinsurance Corp., said the industry “keep working” through financial turmoil as October and January renewals worked themselves out.
“Insurers were willing to go after business, they were willing to commit capital,” he said.
Property and casualty insurers have learned a few lessons over a turbulent 2008, said Marsh Inc. chairman and CEO Daniel S. Glazer. For one, insurers need to reassess their relationships with catastrophe models, given the big losses they’ve seen over the past year.
A second lesson is that it’s not necessarily a good thing to diversify into a number of financial services sectors, he said.
Regarding the financial turmoil the world has seen, Glazer added that “it’s a quirk of the business that brokers tend to do well in volatile markets.” But he added that clients are looking for stability and reasonable pricing more intensely in such markets than otherwise, so it’s important for brokers to work toward that end.
Pierre Ozendo, CEO of the Americas division of Swiss Re, said the property and casualty industry proved “resilient” in 2008, due in part to its conservative capital allocation strategy.
“Maybe we shouldn’t dabble too much with things we don’t know, but we do what we do very well in our core business,” he said.
XL Capital CEO Michael S. McGavick said the property and casualty industry’s business model has proven strong in 2008. “I would warn you not to stray too far from that model, as it is too easy to have a wandering eye when times are good,” he said.
One of the industry’s strengths is that by nature, “we keep focused on the worst that could happen,” giving property and casualty insurers a natural affiliation with risk management techniques.
John T. Hill II, president and chief operating officer of Magna Carta Cos., said the view from Main Street, where small-account insurers work, is that the downturn of the economy in general can hit hard.
“You’re going to see a lot more small businesses going out of business, a lot more contracting,” he said. “That will certainly affect us.”
Ozendo said he sees the middle market as a much more stable market in bad economic times than small or large accounts.
One problem insurers are facing is a rising cost of capital, said McGavick. “There is pressure out there for positive change in pricing, but there are countervailing pressures such as the cost of capital and investment replacement costs.”
Kavitsky added that Allianz was for a long time considered “boring” in the industry because of its very conservative investment strategy. But in the current volatile market that conservatism has proven a strength.
But Kavitsky warned that although Allianz is in a strong capital position, “no one has capital to deploy on business they’re not fully committed to.”
According to Ozendo, a company with a global reach like Swiss Re can rely on a diversity of markets with differing economic conditions, but the concern is that regulators or lawmakers in some countries may not understand the global impact of implementing emergency measures.
Looking at specific business sectors, McGavick said that although many insurers have taken a black eye for their involvement in financial services, he believes there is still great opportunity in that segment for an innovative underwriter.
Infrastructure-related lines are likely to have good openings for insurers, along with transportation, he said.
Swiss Re sees emerging markets as driving future growth for the property and casualty sector, according to Ozendo. The reinsurer is investing in markets such as China by taking the long view and developing carefully, he said.
As for the U.S. market, Ozendo said revenues are “way down” for Swiss Re. But despite the U.S. role as “ground zero” for the current global financial turmoil, he said it is simply not possible for a multinational insurer or reinsurer to ignore it.
(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com)
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