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Category Life Insurance

Earth-shattering figures?

14 June 2005 Angelo Coppola

Speaking at a presentation to media and analysts, the committee members of South African Reinsurance Offices’ Association (SAROA), sketched the issues facing the local reinsurance market.

Angelo Coppola reports:

In terms of insured losses between 1970 and 2004 – there has been a significant development internationally, in terms of man-made disasters, with material damage, excluding loss of life, amounting to $25bn.

Turning to natural catastrophes, which for the reinsurers are more important than man-made disasters, such as the typhoons in Japan, the wind storms in the USA and Caribbean, their impact on reinsurance market, has been significant.

According to SAROA there is more emphasis on the natural catastrophes, than on the man-made side, from a reinsurance point of view, as this is one of the main reasons behind reinsurer equity destruction.

The specific regions identified include North America – 46 events, South America - 16, Asia - 169, Europe - 46, Africa - 36, Australia and Oceania had 5 with oceans and space coming in at 14 events.

Africa had a 10% share of number of natural catastrophes with just 1.2% covered in insured loss, while internationally only 49% of the insured loss was covered.

In light of recent seismic events the reinsurers reminded investors and insurers that Africa and South Africa is a volatile region. There is a need for insurance and reinsurance.

The activity in the Gauteng region is on-going. The Klerksdorp event on 9 March was not a one-off affair, and was valued at R55m in terms insurable loss.

On the general financials of the locally based reinsurers the key combined ratios for P&L have come down nicely by about 1%. The investment return effect is still there, but the focus on the actual business is starting to pay off. Generally about 60% of the risk is carried by the foreign parent.

Looking at the results of the reinsurers it is important to strip out the effect of the investment returns. Underneath the results it is likely that there is a loss-making insurance activity. Something which is being addressed, the reinsurers say.

Having said that, the local reinsurers have invested in the region of R7.5bn into local equities and the international reinsurance companies have directly invested R2.5bn. This industry is committed to the country.

Internationally the insurance industry investment returns have been a staggering -6% for the past 10 years, and if 911 is stripped out this number is -3%.

The key combined ratios for life and health shows a 1% increase in return on operating revenue. The CAR is healthy 300% and the industry is quiet secure from a local insurance perspective.

Note:

The main players in this sector are Swiss Re, Munich Re, Hannover Re, African Re, and RGA Re (Reinsurance Group of America).

In terms of the gross premiums written as reflected on 1 June, Swiss Re were neck and neck with Munich Re in premiums written in the property and casualty market.

SAROA members represent about 50% of the local reinsurance market (there are six members), in terms of the property and casualty (short term) primary insurance market. This is based on the members’ financials of 2004.

R35bn in premiums were written in 2003 (the most recent figures), with roughly a third passed onto local reinsurers.

On the life and health the Swiss Re were also the biggest writers.

Gross premiums written showed an increase, while the total number of claims amounted to R5.5bn. The consolidated underwriting result was slightly negative, as was the case in 2003.

Quick Polls

QUESTION

The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?

ANSWER

Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
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