| Reinsurance, and in particular treaty reinsurance is a | | | | The sub-prime mortgage problem in America has put |
| fundamental part of any insurers' internal risk | | | | the international banking industry in the spotlight. |
| management plan. | | | | Some have failed and many forced to merge or seek |
| The protection of the company balance sheet and | | | | funds from the State. The supply of credit has |
| capital base from extremes in loss frequency and | | | | evaporated or become prohibitively expensive as |
| severity or aggregations is of critical importance to | | | | inter-bank lending ground to a halt. In addition the |
| the viability of an insurer. | | | | dive in world share prices will bring ratings, valuation |
| Reinsurance is a global business heavily intertwined | | | | and capital adequacy pressures to many other |
| with the trade, commerce and finance industries of | | | | companies across all market sectors. |
| most, if not every nation on earth. | | | | Introduction Of more immediate concern to the |
| Events of significance to, or which impact on the | | | | Insurance Industry is the potential for capital to |
| reinsurance industry will affect all insurers to some | | | | disappear or be re-directed away from reinsurance. In |
| degree. | | | | addition, poor investment decisions may have a |
| Recent events may combine to have a sizeable | | | | profound impact on otherwise secure businesses and |
| impact on 2009 reinsurance renewals. | | | | downgrades may result where ratings agencies are |
| Hurricanes Gustav & Ike | | | | obliged to delve more fully into any affected |
| They did not have the same news profile as that | | | | company. |
| attributed to Katrina and the subsequent flooding of | | | | Impact on Reinsurance |
| New Orleans but, the most recent loss estimates | | | | Reinsurance cost pressures will develop due to:o |
| suggest that Gustav & Ike will contribute | | | | Reinsurer difficulties in sourcing new capital and/or an |
| significant claims to reinsurers. In particular, the oblique | | | | increased cost of capital.o Capital Market demands |
| angle at which Gustav approached the Gulf Coast as | | | | for increased returns.o Capacity restrictions.o A flight |
| it produced a greater than anticipated impact on the | | | | to quality (of security) - cedants to reinsurers and |
| rather dense concentration of oil and gas facilities in | | | | vice versa.o Reduced return on investments.Po |
| that region. | | | | Write-downs in value of investments. |
| Recently reported figures suggest a combined | | | | Recent comment from reinsurers suggests an |
| industry loss from Gustav and Ike in the US$20 - | | | | upward pressure on treaty pricing for the December |
| $25bn range (A$28 - 35bn). Losses of this magnitude | | | | 2008 renewal season with flow on effects to |
| will put pressure on many insurer and reinsurer | | | | insurance contracts during 2009. |
| margins. | | | | Disclaimer: This bulletin is for information purposes |
| Global Credit Crisis | | | | only and is not legal advice. |