Investors Give P-C IndustryTheir Vote Of Confidence
You would think that investors would be shying away from the insurance industry, what with poor earnings reports, tens of billions in terrorism losses and the possibility that the federal government will not provide adequate reinsurance coverage in case of another terrorist attack.
However, as shown by a story in last week's edition–"Capital Pouring Into Insurance Ventures"–that is not the case. Investors are looking for opportunities in the wake of the Sept. 11 terrorist attacks that have drained at least $16.6 billion from the industry's reserves thus far, with many more claims to come.
Some of the capital was already promised before Sept. 11, as investors were drawn by higher premium rates in the hardening market. More is coming in, however, because rates are expected to soar now due to the jolt provided by terrorism-related losses.
The question is whether this capital infusion is good news or bad. The answer depends on your point of view. This is definitely good news for risk managers, since the extra capacity is likely to keep prices from soaring too high, especially for prime accounts with little direct terrorism exposure. However, it could be bad news indeed for insurers desperate to offset huge losses and make up for lower returns from a weak stock market.
Here are just a few of the examples of capital entering the property-casualty industry recently, as outlined last week by Lisa S. Howard.
A proposed Bermuda property-casualty insurer and reinsurer, Endurance Specialty Insurance Ltd., seeking capitalization of $1.2 billion.
The formation of a new Bermuda holding company, Talbot Holdings, with former Swiss Re U.S. CEO Heidi Hutter among the investors.
AIG's formation of a new Lloyds syndicate, managed by Ascot Underwriting Ltd., to write general insurance. The syndicate, which will be capitalized by some $146 million, was already in the process of being formed before Sept. 11.
Alea Group Holdings AG, a global reinsurance enterprise, announced a $100 million capital injection from Kohlberg Kravis Roberts and Company LLP, the U.S.-based private equity firm, which is Aleas parent company.
A proposed Bermuda-based p-c reinsurer with expected capital of at least $1 billion will be formed by White Mountains Insurance Group Ltd., focusing initially on property business.
Folksamerica will receive additional support from its parent company, OneBeacon Insurance Group, which is owned by the White Mountains Insurance Group Ltd. The injection will boost Folksamericas capital to $1 billion, doubling its size.
We see this influx in the short term as an encouraging vote of confidence in the viability of the p-c insurance business after the most devastating hit in its history.
Those who fear the investments will undermine the market's recent recovery should note that the total amount of money coming in has not come close to offsetting anticipated Sept. 11 losses. Thus, it is premature to speculate that this new capital will send the hardening market into a tailspin.
If capital continues to haphazardly flood the market, however, a number of insurers–and buyers–could find themselves up the creek.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 19, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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