SA insurance industry dodges some of global fall-out

While underwriters’ income is looking grim for 2009, the local insurance industry is in a better position than its global counterparts, according to Dave Keeling, Gauteng MD of Underwriting Management Services (UMS) and former chairman of the Association of Marine Underwriters of SA (Amusa). It was all doom and gloom when the world’s leading marine underwriters gathered in London for their winter assessment of the state of the insurance and shipping markets recently. And although SA underwriters are not exactly chortling, they are somewhat less gloomy than the global majors attending the meeting, according to Keeling. Although the local insurance community has found itself – along with owners, operators, cargo interests and offshore energy market participants – caught in the chaos now gripping the global economy and financial markets, SA participants have had somewhat less to worry about in the past year. Certainly, shrinking investment portfolios and dwindling underwriting results for 2008 have hit the local market, but at least some of the factors raised at the London meeting do not influence it, according to Keeling. SA underwriters were not directly impacted by last September’s US hurricane season and its effects on the property and casualty markets, he told FTW, nor the frequency and size of claims that have continued to hit the global insurance biggies. Nor has this country been hit by the same sub-prime mortgages calamity that has blitzed US finance institutions in particular, thanks to SA’s previous bank credit controls and the recently introduced National Credit Act. Although the London meeting stressed underwriters being “picky” about the risks they cover, that’s a basic insurance business truth, according to Keeling. “The risk selection should always be at the top of your list,” he said. “There are always good risks and bad risks.” Underwriting performance and investment performance are the two bases for insurers’ returns, Keeling told FTW. “Investment income often exceeds underwriting income and some underwriters offset their poor underwriting with investment returns. But that’s gone phut for the moment. “Now you’ve got to make an underwriting profit, or you’re in trouble.” Underwriters’ income may well fall in 2009, he told FTW, with business books diminishing because of falling turnover. And it’s not just a simple matter of underwriters upping the premium rates across the maritime sector to try to cover the income loss – a change from recent years when the shipping industry enjoyed bargain rates to cover risk during its five-year bonanza. “Intermediaries are going to be getting more and more clients’ instructions on cost saving, as all sectors look to protect their margins – and cutting insurance cost is one option,” Keeling said.