Shrinking reinsurance capacity pushes up rates

In an industry under
pressure last year as a result
of the recession, companies
could ill afford additional
insurance costs – but there
was little option against a
background of shrinking
reinsurance capacity.
“The biggest challenge
for us in 2009 was
reinsurance capacity,” says
Lombard Insurance’s Dean
Burscough, who looks
after the company’s general
and commercial business
related to customs bonds
and guarantees required by
the likes of Transnet Freight
Rail and the port authorities.
“For us to issue any type
of insurance guarantee
we need the backing of
reinsurers.
These are mostly
European-based and
they went through a very
tough time in the
European market.
“We struggled to gain
capacity from them – and
whereas we have typically
used five reinsurers, last
year we had to go to nine.”
In addition, they raised
their rates significantly –
and this had to be passed
onto the clients.
“The increase in rates
has had nothing to do with
Lombard,” says Burscough,
but was related to capacity
and the economic crisis. It
was a worldwide issue, and
our customers were largely
understanding.
“We made a point of
explaining the situation, and
since we had not increased
rates for some time, they
generally accepted it as a
once-off necessity.”
And Burscough believes
it will be some time before
rates come down.
Adding further challenge
to the insurance industry
was the issue of bad debts.
“It was the worst year
ever for bad debts,” said
Lombard’s Menso Kwint.
“Companies were
struggling and import
volumes were down 30% –
all of which impacted on all
our clients’ turnovers.”
And adding to the
misery was the rand dollar
exchange rate. “At the end
of 2008 we were 10 to 1; in
2009 we were below eight so
the rand income of clearing
agents was lower than the
previous year – and with
overheads in rands life was
not easy.”
Looking to the year
ahead, Burscough is not
expecting huge growth
in the economy. “There’s
unlikely to be fireworks for
a while. We hope imports
increase a bit – and that
is probably likely because
there has been a de-stocking
to a certain extent.”