Category Archives: Insurance

Rethinking Reinsurance

Growing uncertainties in the global economy and the increasing occurrence of natural disasters has increased the importance of reinsurance in recent years. According to Timetric’s new foresight report, these are the trends to watch. 

Reinsurance hubs will profit from growth in the global insurance industry

Growth in insurance segments such as life, non-life and personal accident and health insurance is expected to fuel the growth of reinsurance – as direct insurers cede proportions of their written premiums. Although the developed insurance markets were affected by the financial crisis from 2008, many recovered and recorded growth following the recession. This was driven by increases in infrastructure investment and domestic demand. In the same period – despite the financial crisis – emerging economies such as China and India recorded strong growth, and are expected to grow further towards 2020.

Overseas markets remain major revenue generators for reinsurers

Reinsurers operating through hubs generate most of their revenues from offshore markets, meaning that the domestic reinsurance markets in hubs such as Singapore, Bermuda, Switzerland and Hong Kong are very small. Singaporean reinsurers generate more than 90% of their revenue from overseas markets such as Japan, China and South Korea. Most reinsurers set up offices in reinsurance hubs due to favourable regulatory and tax structure, and also to gain access to neighbouring markets. The report finds that while reinsurers operating from Bermuda cater to demand from North and Latin America, reinsurers from Switzerland and Singapore serve European and Asia-Pacific markets. However, reinsurers based in the world’s largest reinsurance market, the US, primarily focus on domestic business.

Solvency II to change the dynamics of insurance and reinsurance

The past years global economic uncertainties have meant more regulation of the financial services sector. New regulatory standards, including risk-based solvency and capital requirements, were introduced in many countries’ insurance industries. In January 2014 members of the European Union will implement new Solvency II standards. As a result, many insurers and reinsurers will be forced to restructure and strengthen their capital and risk exposure. The implementation of Solvency II is expected to lead to significant growth in the reinsurance industry, as consolidation through merger and acquisition activity will increase, and less financially sound insurers will seek assistance and support from reinsurers.

 Product innovation will be key priority for reinsurers

Reinsurance is a highly competitive industry, and most major markets are served by a number of local and international reinsurers. Product differentiation, gaining competitive advantage, profitability and increasing market share are the primary challenges for reinsurers. To increase business and take advantage of new market opportunities, reinsurers will uphold flexible product mixes and add new products to their portfolios. Leading reinsurers such as Munich Re and Swiss Re have started to provide Solvency II solutions and services, including special Solvency II consulting services.

Timetric’s report; ‘2020 Foresight: Reinsurance hubs’ was published on the 8th April 2013.

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Social media to transform insurance underwriting

Searching Facebook and other social network pages of customers has become a frequent practice on the claims side of the insurance business.

Especially in the case of fraudulent claims, social media continues to be an important tool in the fight against insurance fraud. A new report from Timetric finds that searching customers Facebook profiles is one of the first things insurance investigators do to gauge the risk profile of potential and existing customers. For instance in the case of property, casualty and fire insurance, underwriters are using social networks to check if claims are genuine. By understanding the precise profile of the person on social networks and viewing the person’s previous records, insurance companies can get an idea of the payouts that need to be made. Since social data is still in its developmental stages, there is a long way for many insurance companies to fully integrate social media into underwriting practice. Moreover, regulation concerning the use of social data and the debate surrounding the privacy of individual information has to be settled too. Various countries, including the US, are currently debating making their social media network related laws more stringent.

The Timetric report; ‘Trends in Non-Life Insurance Underwriting’ was published on the 26th April 2013.

Captive insurers are moving away from the British Virgin Islands

The British Virgin Islands is one of the world’s most popular places for captive insurance companies. However, a new report form Timetric implies a move away from the Islands.

By the end of the third-quarter of 2012, the British Virgin Islands had 156 captive insurers and 34 domestic insurers. Although the British Virgin Islands is still a popular captive insurance hub, the number of captive insurers has declined from 88.8% in 2008 to 86% in 2011, following a long downward trend.

In the 1990’s, 2,000 captive insurance companies operated on the British Virgin Islands with only 156 present in 2012. The main reason for the large number of captive insurance companies during the 1990’s was the nation’s low capitalisation requirements. Due to the emergence of other offshore and onshore insurance jurisdictions, the volume of captive companies was knocked down. Another key to the decline was the revised financial service laws, made by the British Virgin Islands to comply with international standards.

Introduction of a new insurance law

The Financial Services Commission (FSC) introduced the Insurance Act 2008, which was a revision of the 1994 act. The new act came into force on February 1st 2010 and was intended to provide a more transparent and cost-effective industry framework. The new act, alongside the Insurance Regulations 2009 and Regulatory Code 2009, provides more clarity than the previous system. It was formulated to meet the principles of the International Association of Insurance Supervisors (IAIS) and the EU’s Solvency II legislation.

Captive insurance in Guernsey is thriving after opting out of Solvency II

Guernsey’s decision not to be a part of EU’s Solvency II has strengthened the country’s captive insurance sector – making it the largest in Europe today. 

In January 2011 the Guernsey government and the GFSC issued a joint statement that they would not be applying for Solvency II equivalency. This provided a new form of clarity regarding the regulation of insurance business in the country and, as a result, 72 new insurance providers entered the industry in 2011, and 97 new overseas insurers licensed in 2012, bringing the number of international insurers to 737 at the end of 2012.

According to a new report from Timetric, Guernsey has the largest captive insurance industry in Europe and the fourth-largest in the world. Overall the Guernsey insurance industry grew in terms of written premium value from US$7.3 billion in 2008 to US7.7 billion in 2012, at a CARG of 5.5%. The industry is projected to grow to value US$9.6 billion in 2017, at a CARG of 4.6%, supported by an increasing number of market participants and improving economic growth.

Favourable regulation drives growth for Guernsey’s insurance industry

The government of Guernsey applies no tax on corporate income, capital gains and payroll for insurers operating in Guernsey. As a consequence the number of overseas insurers entering the industry is increasing. At the end of 2012, Guernsey had over 737 overseas insurance providers, compared to 687 at the end of December 2011. Many of these are captive providers, but also the conventional insurance industry recorded stable growth from 2008 – 2012, generating revenues from motor, property damage, life insurance, business interruption, transport, employers, public liability and material damage insurance.

Guernsey’s insurance industry remains relatively unaffected by global developments

It has been some difficult years for the global insurance industry, due to the global financial crisis, dept crisis in the EU and massive catastrophe losses in 2011. The global insurance industry lost approximately US$350-380 billion in 2011 due to various natural disasters such as earthquakes in New Zealand, the tsunami in Japan, and the eurozone crisis. These events have had little impact on the Guernsey insurance industry, which is dominated by captive insurance and focus more on the UK than the eurozone. However, the Guernsey insurance industry is not free from facing external risk. According to Timetric, the ongoing debt crisis in the EU and struggling economic development in the US might influence the growth of the captive insurance industry to 2017.

Innovation drives the Malawian insurance industry

While the Malawian insurance industry is highly regulated – insurers have successfully customised new insurance products to the non-life segment. 

Innovation is one of the key drivers for growth in Malawi’s small and growing insurance industry. According to new research from Timetric, the key segment driving the industry is the non-life insurance segment, which accounted for a 67.0% share of the total insurance value in 2012. The Malawian insurance industry is highly regulated by the registrar of Reserve Bank of Malawi (RBM), which is responsible for exerting control over the insurance and allied activities, including insurance companies, reinsurance companies, insurance brokers, loss adjusters and intermediaries.

In July 2012, NICO General Insurance introduced Cellsure – a product specifically developed to target users of expensive mobile phones. Cellsure is just one example of how Malawian insurers have been using the growing economy and new consumer trends to develop more customised insurance products.

Over the forecast period (2013 – 2017) the insurance industry is expected to be driven by the growing economy. However, the falling profitability and low penetration rate will be the major challenges faced by Malawian insurers.

Group life category increased due to a pension act in 2011

The performance of the group life insurance category in the life insurance segment was exceptional in 2011, with a rise in the number of group life insurance policies from 67 in 2010 to 371 in 2011. This increase in number is due to the Pension Act in 2011. This act mandates every employer in Malawi to provide life insurance cover to its employees. The Pension Bill was enacted by Parliament in early 2011 and came into force on June 1, 2011. The group life category is expected to drive the life insurance segment over the forecast period.

Rising tobacco exports to drive the non-life segment

The agricultural sector continues to be the main driver of the Malawian economy. The main export item of Malawi is tobacco, accounting for 55% of the total number of exports. Tobacco production in Malawi grew by 7.7% in 2011 and stood at 237.2 million kilograms, compared to 220.2 million kilograms in 2010. The growing tobacco production will further increase the exports figure in Malawi over the forecast period, resulting in positive growth in the insurance industry, supported by the promotion of marine and transit insurance.

The Isle of Man; a hub for offshore life insurance

With an aging population the demand for life and health insurance products is expected to increase in the Isle of Man.

Due to a rising and aging population, the Isle of Man has emerged as a hub for captive insurance and offshore life insurance businesses. The population aged above 65 years as a percentage of the total population increased from 17.2% in 2007 to 18.2% in 2011.

The Isle of Man is one of the leading offshore financial centers in the world. Business-friendly and transparent regulations coupled with excellent infrastructure have created a thriving business environment in the island. The insurance industry is an integral part of the Isle of Man’s financial sector and accounted for 13.0 % of its GDP in 2011.

The Manx insurance industry is well diversified with 213 licensed insurance entities at end of 2012, including insurers, insurance management companies and insurance intermediaries. According to new research from Timetric, stable economic growth, a favourable regulatory environment, the availability of an experienced workforce and the tax advantages of running a business on the island will drive the growth of the insurance industry towards 2017.

The insurance industry in Sierra Leone digs deep for growth

Sierra Leone’s promising mining industry has driven growth of the country’s overall economy. While this will boost the demand for insurance products, there is a long way ahead for an industry that is still underdeveloped and inadequately supervised. 

Up until 2010 iron ore production in Sierra Leone was minimal. With the discovery of new deposits in 2011, the country is expected to become one of Africa’s largest iron ore producing countries by 2017. The growing mining industry will require a large labor force, and according to a new report from Timetric this will lead to increased demand for employer liability insurance over the next five years. This comes as great news for the country’s insurers at a time where the industry is struggling with a number of challenges including low penetration rate, rising unemployment, and a weak regulatory framework.

Inadequate supervision of insurance authority

The major concern for the insurance industry is inadequate regulation, which needs to be more focused, coherent, and in line with international best practices. The weak regulatory framework is also the reason behind the underdeveloped nature and low penetration of insurance.

The Sierra Leone Insurance Commission (SLICOM) is responsible for the supervision and licensing of insurance companies, brokers, loss adjusters, and agents in the country. However, the industry does not provide SLICOM adequate data on its financial condition. In addition, SLICOM is also running too low on resources to justify its role in dealing with important stability issues like possible insolvency. It also has a shortage of professional staff, adequate training, manuals, analytical tools, and technology. Today there are eight insurance companies and six brokers operating in the country, however some of these companies only started their operations recently and currently do not contribute a significant amount of revenue to the industry.