underwriting problems in current market conditions svetlana chepeleva deputy managing director,...

UNDERWRITING PROBLEMSIN CURRENT MARKET CONDITIONS

Svetlana CHEPELEVA

Deputy Managing director, Chief underwriterUnity Re Ltd.

01 October, 2007Dagomys, Russia

Basic market statements (2006): • Direct insurance GPW (non-life) – $22,29 млрд. ( 23,1%)• Inward R/I GPW – $3,05 млрд. ( 20,2%)• Inward R/I / direct business – 13,7%

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: re_chesv@reso.ru