Suffering Is No Excuse For Denying Claims: Gen Re Exec
Although U.S. reinsurers are still recovering from the effects of business they wrote in the 1990s, the fact that theyre suffering does not give them a reason to delay the payment of claims, one reinsurance executive said recently.
Joseph Brandon, chief executive officer of General Re Corp., part of Omaha, Neb.-based Berkshire Hathaway Inc., offered an industry insider's view of the rough-and-tumble environment in the U.S. reinsurance market of the past few years during the Standard & Poors insurance conference last month.
"Let me start by saying that, from General Re's perspective, reinsurers clearly suffered more losses than they had expected to as a result of businesses that they wrote in the late 1990s," Mr. Brandon said. But "suffering more losses than you expect" is not a legitimate reason for denying or not paying valid claims, or seeking to slow down the rate of paying these claims, he emphasized.
"We track our disputes very carefully. We have done this for a very long time. In fact, we also track our potential disputes very carefully," he added.
Looking at the history of reinsurance, Mr. Brandon mused that reinsurance had been seen as a relationship business, if not a partnership between the primary company and the reinsurer historically. Both entities were working together to produce favorable gross underwriting results."
Historically, reinsurance was seen as a risk management tool, when a primary company was putting a business plan together and was deciding what risks it was capable of keeping or had the expertise to keep–and what risks it didn't want to retain. And the reciprocity between a reinsurer and the primary company was measured over relatively long periods.
But starting in the mid-1990s, Mr. Brandon recalled, as a response to economic pressures, some primary companies stopped seeing reinsurance in terms of a relationship. "They shortened the time horizon over which they viewed the reinsurance relationship–they became more transaction-oriented. They came to see reinsurance as a cost to be managed, no different than any other vendor," he said.
He argued that some primary companies even became opportunistic in their reinsurance purchases and began to see reinsurance as a "profit sector."
"We all heard the term 'reinsurance arbitrage' enough in the last three or four years to know what I am talking about, he said.
I think some of the reinsurers were slow to respond to these changes in companies' behaviors and in the environment. As a result, some suffered large losses," Mr. Brandon said.
Also during the session, Laline Carvalho, director at New York-based S&P Ratings Services, noted that while the latest U.S. reinsurance industry figures are showing encouraging signs of rebound, reinsurers companies can't afford to let down their guard just yet.
Referring to first-quarter 2003 statutory results recently released by the Reinsurance Association of America, she said they showed a very substantial improved industry combined ratio of 96.4.
That's about a 13 percent return-on-revenue, which is pretty good. But it's fair to say that this is only one quarter and many more quarters like this are needed."
Reminding seminar participants of the suffering of the U.S. in the last few years, she noted that from 1999 to 2002, net losses for the top 50 p-c reinsurers pretty much erased any gains that companies reported in at least the previous five years before that," she said.
Reproduced from National Underwriter Edition, July 7, 2003. Copyright 2003 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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