Denis St. Bernard, ContributorMANY REINSURERS have indicated that they are finding it almost impossible to hold down existing property rates in the region, some have refused outright to continue to underwrite any more risk in the region, due primarily to the continuous heavy losses experienced in this part of the world.
These were the general comments coming from most of the reinsurers and reinsurance brokers gathered at the recent Insurance Association of the Caribbean (IAC) Conference, held in Trinidad & Tobago.
A recent report from Swiss Re, one of the leading reinsurers in the world, said that the Caribbean and Latin American countries account for approximately two per cent of the world's reinsurance market but attract as much as 30 per cent of the losses suffered.
"Prices are going up significantly on commercial lines," says Roy Watkinson, head of commercial underwriting at Axa Insurance. "Some reinsurance renewal rates are in excess of 80 per cent on three and five-year programmes.
"On commercial motor lines, increases were more than 20 per cent last year, which was the second most expensive year ever for reinsurers on a global basis.
"As a reinsurance buyer I expect costs to continue go up quite noticeably, " explained Mr. Watkinson in a recent article in the International Insurance Post magazine.
The regional insurers therefore have now found themselves in quite a dilemma and have little or no choice but to pass these increases onto policyholders, in the form of higher premiums.
Jamaica in particular is set to be one of the hardest hit, simply because rates in recent times have been comparably low and reinsurers view Jamaica as a "double catastrophe risk", in that Jamaica is predisposed to both earthquakes and hurricanes. Many of the other countries in the region are susceptible to either one or the other. This double exposure therefore puts Jamaica in a higher costs category for reinsurance.
A local reinsurance practitioner in a recent discussion confirmed that many of the traditional reinsurers e.g. certain syndicates at Lloyds of London are now shying away from writing business in the region and other players such as AIG PRIMARY and Lexington are either no longer in the reinsurance business or have stopped writing property business.
One source went on to add that there were still some opportunities open to the region but many of the insurers first needed to be better capitalised and herein lay one of the fundamental problems facing the region's industry.
Leslie Chong, managing director of BCIC and deputy chairman of JAGIC agreed with this assessment and added that many of the reinsurers are now looking at rates in Jamaica at between .6 per cent and .8 per cent, reflecting an increase of 35 per cent, and these are on grade 'A' construction, with warranties. Which means that this can be considered a minimum increase.
A number of factors have been named for this dilemma, such as earthquake losses, windstorms and hurricanes in the Caribbean and the general hardening of rates in the world reinsurance market, which has a capacity shift, in that reinsures would be now looking at placing their business in more profitable areas.
On the question of the Caribbean Reinsurance Pool concept being an option for these hikes in premium rates, Mr. Chong explained that even if the region agrees to pool resources, the eventual gains would be insignificant when compared to the efforts. He drew inferences to rough estimates where the local property market last year had a total risk exposure of approximately $810 billion. With a risk exposure like this, major reinsurance is a must.
Mr. Chong expressed concerns that the Jamaican economy , in its present state, could not sustain these sudden and significant increases. Therefore some sort of phasing arrangements needed to be made and he surmised that this impact would cause further consolidation of the local industry.
"At the moment Trinidad & Tobago, Barbados and the Bahamas were already at higher rating levels, as they have decided to take a more pro-active approach to the present dilemma, therefore we need to do something and quickly," he said.
Gerry Brooks, managing director of TATIL, one of the most profitable insurance companies in Trinidad, when asked to comment on these price hikes said that there is a need for a co-operative effort among insurers, treaty reinsurers and particular facultative reinsurers to ensure economic rates are charged in the Caribbean.
It was also critical that areas of greater exposure and those which have experienced a greater frequency of losses be separated from those further South. These must be attended by risk improvement and loss control measures.
The approach, Mr. Brooks continued, should not be a 'knee jerk' reaction informed by an adverse loss experience in 1998 and 1999. Rather, the approach to rate increases must be a measured, consistent approach requiring co-operation among all of the insurers, reinsurers and all of the big constituencies in the Caribbean, he said.
Denis St. Bernard is an insurance & marketing consultant. He is also the co-host of Risky Business, a radio programme which deals with risk & insurance matters.
