A return of cash flow underwriting – is this common sense or a kamikaze approach?

Rising interest rates and businesspeople_Kamikazi approach

As interest rates rise, talk is growing of a return to cash flow underwriting. Popular in the 1980s and 1990s, this is when insurers underwrote unprofitably, but were covered by strong returns. There is concern that insurance could be heading for the ultimate race to the bottom, reports Saxon East.

While the outside world was struggling with sky-high interest rates and negative equity on their homes during the 1990s, inside the London Market something altogether different was going on.

Insurance companies, keen to take advantage of the double-digit interest rates, were pursuing ‘cash flow underwriting’. This was the idea that insurers could rack up underwriting losses and still come out with good profits thanks to high interest rates yielding such handsome investment returns.

Barrie

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