Atlas Magazine April 2009

A messy situation

So many things we used to believe in are now falling apart: insurers' and reinsurers' financial soundness, questioning rating agencies, top executive salaries, ...

Who would have imagined, a few years ago, that the world' s number one insurance company, the American giant AIG would be filing for bankruptcy and that Swiss Re would be rated A after having sunk in the red zone and parted ways with its Chairman and Chief Executive Officer.

It is show time: everyone is involved: bosses, rating agencies, financial capitalism, toxic products, ...

The crisis has brought to light many dysfunctions which had been kept in the shade for a long time. Insurers' costs structure is among the irritating topics.

In Africa, many insurance companies bring out overhead costs (excluding commissions) representing 35% or more of the written premiums. Such expenses ratios may go up to 50% or 60% for some companies.

With loss ratios comprised between 30% and 40% and poor commissions awarded to intermediaries, it is legitimate to question the purpose of insurance premiums: pay claims to the insured? Properly reward business providers? Or hand over salaries to executive staff members?

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