Hanging in the balance sheets

While some have claimed the market to now officially be soft, one major sticking point that emerged recently, concerning shareholder value, may prove the speculation of some pundits to be premature. Andy Homer's assessment in last month's PB interview, that, until reinsurers have rebuilt their balance sheets there will not be an oversupply of capital, began to take shape at the end of June as an AM Best report found European reinsurers' balance sheets to be 'partially restored' (see news p8). While this news may seem to herald further softening, the rating agency cited the 'finite appetite' of investors, leading to the suggestion that this is how reinsurers will distribute any capital that may be freed up as a result of some carriers' publicly stated intention to reduce premium volumes.

Insurers' shareholders too are enjoying the first fruits for many years as reports of healthy profits in 2003 continue to be proudly announced to investors - a state of affairs the management of these insurers will want to preserve for the foreseeable future.

Allianz Cornhill's Chris Hanks has suggested that, because the chief executives of the top insurers are relatively new to their positions and would like to hold on to their jobs, this will ensure underwriting for profit continues and, therefore, prevent a free fall in rates. This theory, when offered for discussion, is commonly met with nodding approval by those conceding that it contains at least an element of truth.

Various undertakings from insurers would also seem to suggest that the right rates are being put into the market at present and, while rate increases slow, increments ensure rates keep abreast of inflation.

Groupama's Amanda Blanc, like many, is hoping insurers will hold their nerve to avoid the extreme fluctuations of the past (see interview p20).

Her observation that rates in tell-tale sectors such as fleet motor have plateaued at present tallies with that of AM Best's general manager Jose Sanchez-Crespo that rates generally are now flat. While some suggest it may be a locally based, rogue underwriter that may upset the apple-cart, others cite softening property rates in the US.

But this ushers in an age-old problem. With so many hands on the tiller trying to ensure the good ship insurance's safe navigation away from the troubled waters of the past, it may only be a matter of time before today's speculation becomes the very thing that tests the elasticity of investors' and brokers' tolerance in future.