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UNDERWRITING PROBLEMS IN CURRENT MARKET CONDITIONS

This article discusses the underwriting problems faced in the current market conditions, including consumer-oriented market, dumping policy, losses, soft business from CIS, M&A and western orientation, and technical underwriting problems.

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UNDERWRITING PROBLEMS IN CURRENT MARKET CONDITIONS

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  1. UNDERWRITING PROBLEMS IN CURRENT MARKET CONDITIONS Svetlana CHEPELEVA Deputy Managing director, Chief underwriterUnity Re Ltd. 01 October, 2007Dagomys, Russia

  2. Basic market statements (2006): • Direct insurance GPW (non-life) –$22,29 млрд. ( 23,1%) • Inward R/I GPW –$3,05 млрд. (20,2%) • Inward R/I / direct business –13,7% • Basic market tendencies in Russia: • strengthening of financial abilities of market players; • decrease in ‘scheme’ share of business; • further M&A development; • higher requirements for capital and portfolio structure. Price market trendunderwriting problem as one of the most negative tendencies!

  3. International market: • 2006 – loss ratio stabilization, slight market softening; • positive dynamics of profits and combined ratio; • price trend (rates) stabilization. • Russian market: • consumer-oriented market and dumping policy; • claims, claims and claims; • soft in-ward R/I business from CIS neighbours; • M&A + western orientation; • technical u/w problems.

  4. Consumer oriented market and dumping policy: • current market = consumer’s market – not seller’s one; • dumping is already adevelopment strategy – not just a tactical tool for competition struggle in the market; • extensive development (blowing upNPWwithout paying enough attention to service, quality and financial back); • ‘non-profiled’ in-ward reinsurance and reciprocity; • no market barriers for actually bad risks.

  5. Losses: • large claims-portents – Azovsteel, Protek, Vestel, Admiral; • a rapid growth of classic fire claims; • unpredictable results for new & promoted classes, e.g. title insurance and state-contract liability insurance; • stop writing of some classes of business (marine, aviation). • Soft business from CIS: • a very formal approach to insurance  orientation for a minimum policy premium; • a dumping squeeze of insurers with no market barriers for bad risks  a significant lack of economical element in the tarification; • a final burden of the above is transferred to reinsurer!

  6. М&A and western orientation: • much of business is reoriented to foreign markets; • need for capitalization riseleaving the market or searching investor who is often interested in developing ‘scheme’ business – not the classic (re)insurance;

  7. Technical underwriting problems: • CAR: placement on annual basis + covering a partly completed construction + rates do not relate to period of construction; • agriculture risks:a lack of adequate documentary base and practice for handling accounts, controlling claims; • short periods of coverage with no short-rate calculation applicable; • Property/CAR: rates are applicable to limit of indemnity – not to a whole insurable value/TSI; • a lack of specialized u/w approaches to different types of property (rate for metallurgical plant = rate for office building); • stocks & warehouses: the capacity of tens of million dollar is requested without an adequate MDP applicable.

  8. Estimated R/I capacity - Russia:

  9. Factors of further development: • forthcoming of the next phase of insurance cycle firm market and rise of loss ratio! • large man-made disasters predicted for nearest future; • M&Aand capitalizationneed for RoEgrowth struggle for market share, clients and sales  R/I as the alternative tool for earning  rising NPW  dumping! • forcing of market position of foreign global insurers.

  10. Thanks for your attention! Questions and comments: Mob.: +7 926 254 6500 E-mail: re_chesv@reso.ru

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