Eric Smith,
President and CEO, Swiss Re Americas
Latin America’s growth and the potential for both our clients and the reinsurance industry is the lead story for 2013, and it will be an interesting one for many decades to come. Mexico, Columbia and Brazil are the three countries we find extremely interesting. You see a lot of big infrastructure projects, which leads to Engineering and Property covers. In all three of those countries [you can see] the emergence of the middle class, and this is driving a lot of opportunity in the insurance space.
The lack of robust economic growth in the U.S. is by far biggest challenge. The economy is not growing at a rate that allows insurers to see the kind of organic growth they would like to have. If the economy doesn’t pick up, then what we saw in 2012 we will see in 2013.
Second challenge: the weather. Right now, we are still in the immediate aftermath of Sandy. Part of what we will see [going forward] is more dialogue about what do we need to do to prepare for the next one. There will be a next one. It is just a question of when and how severe.
Sean McGovern,
Director, North America, General Counsel and Risk Management, Lloyd’s
In terms of growing your business in 2013, the outlook is quite bleak, I’m afraid. The rate environment remains challenging. Although some lines are seeing improvements; it remains spotty. That means it’s going to be all about the quality of your underwriting; there’s not much else to reach for. Extra challenges come in the oversupply of capital in the industry: capacity is at record levels, in spite of the industry absorbing major cats in 2011 and 2012.
We remain focused on our core markets—the U.S., U.K., Canada and Europe—while also looking at faster-growing economies. However, low global economic growth will continue into 2013, fueled by such factors as the Euro crisis and negotiations on the Fiscal Cliff in the U.S. and what impact it may have on the U.S. economy.
Peter Eastwood,
President & CEO, AIG Property & Casualty, Americas
Certain emerging markets show promise. In Brazil, for example, there is a moderate growth of about 4.5 percent; the country has relatively low penetration rates in insurance and is seeing the emergence of a middle class. The result is more business and more insurance possibilities related to those businesses, with more Commercial Lines and Personal Lines opportunities.
We’re going to see a sustained low-interest-rate environment and continuation of a choppy recovery from an economic standpoint. Further events like Superstorm Sandy can incur rate increases in portions of a company’s portfolio along Cat-Liability lines, leading to a bit of a slow and steady march toward rate improvement. We are challenged to get a return on our business equal to or greater than the cost of the capital we have. As an industry, we’ve got to figure out a way to get there.
Morris Tooker,
Executive Vice President, General Re (Berkshire Hathaway’s direct reinsurer)
Clearly the evolving regulatory landscape will drive changes for all carriers. The specter of inflation, Cyber risk and changing weather patterns are all to be seriously considered as well. The evolution of the role that capital markets/pension funds play in the reinsurance space will also be something to watch in 2013. The big challenge that needs to be on the industry’s radar in 2013 that we fear may not be is TRIA re-authorization. This backstop is critically important to the industry and risks being lost in the current legislative logjam.
Superstorm Sandy highlighted a number of weaknesses in infrastructure, planning and design. It is likely that efforts will be made to strengthen mitigation approaches, and we welcome these efforts. A larger debate that needs to develop from the aftermath of Sandy revolves around the lack of common industry language on policy form and coverage, deductibles, and storm definition, particularly for Homeowners’ policies. The insurance industry needs to lead these efforts to minimize confusion and the resultant damage to the industry’s image post-event.
Brian O’Reilly, Senior Vice President of Marketing Philadelphia Insurance Cos.
The top opportunity for companies in 2013 is the ability to obtain more rate on their books of business. The Property market in catastrophe zones will continue to push for increases. We have seen some increase in construction, so that dormant market over the last few years may be waking up. We are expanding our E&S division, so we still see growth opportunities in certain underserved markets.
The biggest challenges would be the continued unpredictability of weather patterns; and companies managing their Property aggregation. Also, how do companies balance the need to achieve rate on their business, but then compete on new business to grow the top line?
Tim Francis,
Cyber Risk Enterprise Lead, Travelers
Data breaches and other lost data events continue to happen and get a lot of press. A lot of customers and potential insureds are increasingly aware of the rise in cyber activity and also the variety of different insurance options that are available to transfer the risk of Cyber exposure.
There’s a continuing evolution in the world of Cyber Liability: not too long ago it was looked at as on the fringe; just recently, it has moved to a really mainstream coverage for commercial enterprises. Pretty much any industry, any size, is looking to find a solution to detect if these exposures exist, and what they have vulnerability to. In terms of the special challenges presented by Cyber: Technology moves quickly, while the insurance world usually moves slowly—so it’s important that carriers keep up with the trends of their customers.
Ben Walter, CEO, Hiscox USA
In Specialty lines, the biggest difference this year may be increased pricing uncertainty. We have seen remarkable disparity in various loss profiles. Some have been relatively sanguine. Others, like Workers’ Comp, have been extremely challenging. But regardless of the outcome, many areas are getting harder to model given the pace of economic and technological change. In 2013, the industry will really grapple with how to price against such dramatic uncertainty.
There will be select areas of growth in the Property sector following Sandy, but we see this as largely a regional play with national rates somewhere between flat and up 5 percent. Where we see the biggest opportunity is on the Casualty side in the areas that are flourishing in the new economy: health care, technology and other fast-growing professional services. From a market point of view, these areas are growing well above the economic trend line, and they are much less prone to volatile business cycles.
The lack of investment income continues to be an issue that the industry hasn’t fully addressed. We call it ‘the hidden catastrophe’: equivalent to more than a Katrina-sized hit to profitability every year relative to the long-term baseline.
Jack Salzwedel,
Chairman and CEO, American Family Insurance
Organic growth will remain difficult in 2013. We’re all hoping the economy picks up to the extent that greater demand for insurance results, but we can’t count on it in our planning. In order to capture a larger piece of the pie, insurers will need to innovate as a means of distinguishing themselves in the marketplace. Mergers and acquisitions are another avenue for growth and may be a popular strategy in 2013.
A significant challenge for the insurance industry in 2013 and beyond will be the competition for top-notch talent. Quality people drive innovation in many key areas such as technology and product design and development. The great companies will be the ones that maintain an edge in identifying, recruiting, developing and retaining talented personnel.
Michael Fergang,
Chief Information Officer, Grange Insurance
The amount of data that’s available to insurers is exploding. Carriers that excel at harnessing this data to shine a light on profitable paths and new opportunities will have a big advantage over carriers that struggle with the volume and breadth of information.
Growth in a continued soft—or at best, "squishy"—market will be challenging. In the current economic climate, investments in customer/agent capabilities and any initiative that will help retain current customers helps grow the bottom line. Operational efficiencies, although not as exciting, are always on the radar and help us redirect resources to our most valuable initiatives.
The extended market challenges and uncertain investment landscape will continue to challenge carriers to “do more with less” and to continue focusing on initiatives that cut cost, increase efficiencies and enhance relationships with our agents and policyholders. This is the ‘new normal’ and will continue to challenge us for the foreseeable future. To compete in the independent-agent market, we have to align our efforts with the needs of the agent to drive value and make them want to write business with us.
Jon Hall,
Executive Vice President, FM Global
From a supply-chain perspective, large, technically oriented insurance buyers have fewer places they can go that can offer the broad coverage, capacity and specialized services they need. Insurers that can understand and respond to those needs are the ones that stand to gain.
There are fewer and fewer carriers capable of delivering a consistent global-insurance program to organizations that have a multinational footprint. This presents growth opportunities for those insurance organizations that can do so.
Tom Motamed,
Chairman and CEO, CNA Financial
With declining investment yields, adverse catastrophe results and slowing reserve releases, 2013 will see greater emphasis on underwriting and pricing integrity. There is less room to be bold when you don’t have the yields and reserve redundancies of prior years.
Underwriters will spend their energies on improving margins by increasing rates, particularly on cat-prone business and Workers’ Comp. At the same time, underwriters will continue to look at developing markets as new sources of growth and will begin to put more resources behind such industries as health care and technology.
Bradley Kading,
President, Association of Bermuda Insurers and Reinsurers
“Growth” is not the operative word for 2013. The operative word continues to be how to earn an underwriting profit in a world of limited investment income.
To be a global player you have to be a global player: Clients expect you to be able to meet their needs in the U.S., E.U., Asia and elsewhere in the world. The developing markets hold promise, but growth will be slow and government intrusion into the business must be avoided.
Protectionism and regulatory overreach are the major challenge for 2013. Limitations on flexibility with capital are problematic. To be an international commercial insurer and reinsurer you need to be able to manage risk and to pool it as necessary, without unnecessary impediments from protectionist regulatory ring fencing or tax policy. Policymakers expect us to write major risks—we are willing to do that—but we can’t be hamstrung by overreaching regulation. Regulatory or tax policy imposing ring fencing of capital will limit capacity which means higher prices.
There’s a chance a critical mass of thinking on climate change will cause more insurers and reinsurers to become more outspoken and to increasingly engage with policymakers on adaptation-risk-based pricing; building and planning for resilience; and looking at cat risk from a more holistic perspective.
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