Crisis poses low threat to reinsurers

Research conducted by the International Association of Insurance Supervisors (IAIS) conducted during mid-2008 on the global reinsurance market found that while there was some concern to the asset side of reinsurers’ balance sheets – due to exceptional stock market volatility and exchange rate fluctuations – reinsurance companies’ holdings in asset-backed (sub-prime related) securities were low and represented a moderate threat to companies. Generally, conservative investment risk approach resulting in diversified asset holding patterns and vigilant supervisory notices served the sector well. On the liability side however, a report by Standard & Poor’s estimated that insured losses emerging from financial market issues fell between $3bn and $9bn. While this is a very wide range, the report points out that this is a relatively small level when compared with the cost of recent manmade or natural catastrophes. S&P observed that very few reinsurers have felt the need to establish material bespoke loss reserves. The IAIS reinsurance report revealed that capital levels remained more than adequate in 2007, with available shareholder capital remaining at around three-fold the level of minimum requirements, although this was down from the nearly four-fold adequacy in the previous year. Investment returns of between one quarter and one fifth of underwriting incomes helped to maintain satisfactory profits performance. At their current level of capitalisation the industry retains adequate shock-absorber capacity for the foreseeable future, the report said.