UNDERWRITING PROBLEMS
IN CURRENT MARKET CONDITIONS
Svetlana CHEPELEVA
Deputy Managing director, Chief underwriter
Unity Re Ltd.
01 October, 2007
Dagomys, Russia
Basic market statements (2006):
• Direct insurance GPW (non-life) – $22,29 млрд.
• Inward R/I GPW – $3,05 млрд.
( 20,2%)
• Inward R/I / direct business – 13,7%
( 23,1%)
Basic market tendencies in Russia:
• strengthening of financial abilities of market players;
• decrease in ‘scheme’ share of business;
• further M&A development;
• higher requirements for capital and portfolio structure.
Price market trend  underwriting problem as one of the most
negative tendencies!
International market:
• 2006 – loss ratio stabilization, slight market softening;
• positive dynamics of profits and combined ratio;
• price trend (rates) stabilization.
Russian market:
• consumer-oriented market and dumping policy;
• claims, claims and claims;
• soft in-ward R/I business from CIS neighbours;
• M&A + western orientation;
• technical u/w problems.
Consumer oriented market and dumping policy:
•
current market = consumer’s market – not seller’s one;
•
dumping is already a development strategy – not just a tactical
tool for competition struggle in the market;
•
extensive development (blowing up NPW without paying enough
attention to service, quality and financial back);
•
‘non-profiled’ in-ward reinsurance and reciprocity;
•
no market barriers for actually bad risks.
Losses:
• large claims-portents – Azovsteel, Protek, Vestel, Admiral;
• a rapid growth of classic fire claims;
• unpredictable results for new & promoted classes, e.g. title
insurance and state-contract liability insurance;
• stop writing of some classes of business (marine, aviation).
Soft business from CIS:
• a very formal approach to insurance  orientation for a minimum
policy premium;
• a dumping squeeze of insurers with no market barriers for bad risks
 a significant lack of economical element in the tarification;
• a final burden of the above is transferred to reinsurer!
М&A and western orientation:
• much of business is reoriented to foreign markets;
• need for capitalization rise  leaving the market or searching
investor who is often interested in developing ‘scheme’ business –
not the classic (re)insurance;
Technical underwriting problems:
• CAR: placement on annual basis + covering a partly completed
construction + rates do not relate to period of construction;
• agriculture risks: a lack of adequate documentary base and practice
for handling accounts, controlling claims;
• short periods of coverage with no short-rate calculation applicable;
• Property/CAR: rates are applicable to limit of indemnity – not to a
whole insurable value/TSI;
• a lack of specialized u/w approaches to different types of property
(rate for metallurgical plant = rate for office building);
• stocks & warehouses: the capacity of tens of million dollar is
requested without an adequate MDP applicable.
Estimated R/I capacity - Russia:
Class
Net capacity,
million $.
Gross capacity (with
treaties), million $
Property
25
400
Energy
15
200
CAR
20
250
Marine hull
50
120
Cargo
50
100
Aviation hull
5
35
Factors of further development:
• forthcoming of the next phase of insurance cycle  firm market and
rise of loss ratio!
• large man-made disasters predicted for nearest future;
• M&A and capitalization  need for RoE growth  struggle for market
share, clients and sales  R/I as the alternative tool for earning  rising
NPW  dumping!
• forcing of market position of foreign global insurers.
Thanks for your attention!
Questions and comments:
Mob.:
+7 926 254 6500
E-mail: [email protected]