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.”