It's time for reinsurers to extend a hand to the ART market

- Herman Schoeman, MD of Guardrisk

In 2004 locally registered reinsurers received only half of the business that would typically have been allocated to them ? the rest went to other markets.

Increasingly, direct insurers are renewing significant programmes offshore with non-registered reinsurers. But its not lack of capacity that is causing reinsurance buyers to look elsewhere.

Local reinsurers certainly seem to have adequate capacity; what has changed is the criteria being used to apply that capacity.

Prior to the US terror attacks in 2001 reinsurers focused on growth and market share, and inevitably their capacity was allocated to those insurers who helped them reach these goals. Undoubtedly, the focus on writing as much gross premium as possible shaped reinsurers and their parent companies? perception of the South African market.

In the wake of 9/11 other factors are dictating the allocation of capacity: the focus is now on sustainable earnings for shareholders, and issues like the cost of capital and return on investment are becoming increasingly important to reinsurers. Simply put: reinsurers are now writing for bottom-line instead of focusing on top-line growth.

The problem is that the market is showing signs of softening and, within a price and rate driven environment, local reinsurers are being subjected to new financial measurements that don?t always make it possible for them to provide the required capacity.

Reinsurance is essentially an international business and, in a market like South Africa - despite regulations regarding approved reinsurance - there will always be a need for access to international capacity. In today's 24-hour global village, time and distance are no longer restrictive and sending business offshore can be as convenient as dealing with someone down the road. Overseas markets are more than willing to step into the breach created by the conflict between local buyer's needs and reinsurers' criteria for applying capacity; and are coming through to provide capacity that focuses on price.

Not only are local reinsurers losing market share to international competitors but direct insurers - having made good profits in recent years - are able to take more risks for their own account now that growing reserves have increased their capacity.

Perhaps the time is ripe for reinsurers to take a closer look at the ART market where there are significant opportunities for them. Local reinsurers can do much to sustain and grow their market share by recognizing that ART products actually conform to reinsurers' increased focus on financial measurements and shareholders' expectations.

ART does not operate in an environment driven by gross premium written. In fact, ART products are structured and priced similarly to reinsurance and are well-aligned to factors like profit ratios and return on investment.

Reinsurers can only benefit by extending a hand to the ART market and providing the necessary capacity.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: 011 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: 011 615-3309 / 083 225 7450