Atlas Magazine November 2013

Reinsurance, a risky business

Reinsurance is a risky business. All actors know it, especially insurers who, at the end of each year, start refine their security list.

Although bankruptcies are rare in this business, many reinsurers, large and small, have been through difficult times. Fortunately, the market has always been able to find solutions either through injection of new capital by shareholders or by means of a last-minute acquisition.

This investors’ infatuation with reinsurance remains undeniable in 2013 despite a profound change in risk mapping.

As business shifted eastwards, the United States, Europe and Japan are no longer the only areas of major risks. Asia, lashed by violent and frequent cyclones, joined the list of highly exposed areas. Moreover, the exceptional loss experience sustained in these recent years, accounted for by global warming according to some analysts, coincided with the strong accumulation of values triggered by high economic growth rates. Underwriting in China, South Korea, India, Indonesia, Vietnam, or in Thailand becomes a matter of experts where financial soundness combines with risk modeling and management of liabilities.

This East rush will not be without consequences for some reinsurers who will have to pay for their appetite for risk. Uncontrolled underwritings will strain many players. The 2011 Thailand floods have already triggered the first selection, especially among small reinsurers and those with regional focus. Standard & Poor's along with other rating agencies will not fail to punish those in breach of the rules.

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