Summit News: Catlin and Hiscox hit out at AIG for slashing rates

THE current economic situation presents the first live test of risk management since 2001/2002.

Georg Daschner, a member of the board of management at Munich Re, told delegates at the Insurance Day Summit London that although the world had now entered a recession there was not yet evidence of a worldwide financial crisis.

Still he said insurers and reinsurers would have to re-evaluate their relationships to ensure they thrived through the difficulties.

The sub-prime crisis coupled with the subsequent credit crisis battered the capital levels of risk carriers.

At the same time premium is being reduced in many lines — either because of competition or reduced demand — and investment returns are not expected to improve in the short term

This, according to Daschner, leaves insurance companies with limited choices: reduce exposures, turn to solutions such as sidecars or ILS, or buy more reinsurance.

Although there is evidence of ILS returning to a degree, Daschner suggested the capital markets would not be able to fill the gap on its own.

“We’re seeing traditional reinsurance taking on a increasingly important role,” he said.

That increase in demand for reinsurance is driven by what Daschner called “a number of factors that are not going away soon”, including high investment losses, heightened risk exposures and great capital needs.

He said there was a “win-win” situation for insurers and reinsurers, adding: “In my opinion, the solution is not to spread across a huge number of carriers, but to choose the right ones.”

Daschner stressed the task at hand was not easy to handle but emphasised that with proper planning, the insurance and reinsurance sector was well-suited to manage the challenges ahead.