IIG Industry Outlook - 23 March 2017

2017 and Beyond …..

The first of the IIG’s Industry Outlook events for 2017 was held on the 23th of March at the GIBS Business School in Illovo, Johannesburg. There were more than 100 attendees at the session where three experts in their respective fields presented on topics that were of relevance to the insurance sector. 
 
Mr Guy Royston, Head of Marsh Specialty was the first to present on the topic of “Global Insurance Outlook”. 

Royston focused on two main topics, providing statistics from the “Marsh Global Insurance Market Index” and “Geopolitical Risk and Market Trends.
 
According to Royston, the global insurance market remains very competitive with commercial insurance rates decreasing across the globe in most lines of business.  Supporting evidence was provided by the recent Marsh “Global Insurance Market Quarterly Briefing”.

Competitive market conditions, characterized by an abundance of global capacity and a lack of large insured losses accounted for the ninth consecutive quarter of rate decreases. Historically low levels of natural catastrophe losses globally assist to remove near-term catalysts for increased rates.

Rate decreases were seen across regions as well as in most major lines of business, however notable exceptions are in specialized coverages, led by a firming cyber insurance market.

With regards to geopolitical risks and market trends, Royston commented on the increased risk relating to the political impact of anti-establishment sentiment, most notability in the United Kingdom and Europe following BREXIT, and recent elections held in the United States.

Royston presented the Marsh 2017 RISK MAP and commented that dramatic events in the geopolitical environment can have complex effects on the risk landscape and can trigger new risks, or exacerbate existing ones.  They can also open the way to responses that mitigate risks.

With regards to emerging risk, Royston stated that cyber threats are on the increase with an estimated annual cost of cyber-crime to the global economy being $445Billion and is estimated to reach $2.1Trillion by 2019. According to the Symantec’s 2015 Norton Report, South Africa ranked as the 3rd most targeted country of the 24 countries surveyed, and the FBI has ranked South Africa as the 6th most active country for cyber- crime in the world.

Looking forward Royston commented that to be competitive, business should rely on more sophisticated risk modelling, and as they face more regulatory constraints, will need to be innovative with products and services.

The second guest speaker Mr Matthew Pirnie, a director of the rating agency Standard & Poor in South Africa, presented on the topic of “Rating and the Economic Outlook”.

Pirnie stated that although South Africa is comparable to Mexico and Brazil in terms of S&Ps risk benchmarking, it faces distinctly different risks from its peer groups.  In addition, despite the United States election results and BREXIT, these first world markets are still fairly low risk when benchmarked.  This is primarily the result of their robust financial and regulatory structures.

South Africa makes up 0.46% of the global GDP and shares 1.03% the global GWP. This places South Africa in the top 5 countries when comparing to GWP to GDP and raises an interesting discussion point as to the insurance buying behaviour of South Africa’s household and business sectors. 

Pirnie commented on South Africa’s BBB Sovereign Rating, as confirmed by S&P and the impact that it has on the financial services industry and specifically on the banking and insurance industry. The two main drivers for the current rating outlook are the low levels of economic growth and the high levels of government debt held by state-owned enterprises such as Eskom and SAA.
 
According to Pirnie the insurance industry will see below inflationary increases on the back of a low economic growth rate and an ever softening global premium rate, but we could still see a profitable South African market when considering combined ratios.

Pirnie concluded his presentation, commenting on the impact of the regulatory environment, BBBEE, Resolutions reached by the G20, and the impact of technology on the insurance industry.

Ms Christine Rodrigues, a Director at Norton Rose Fulbright, was the third speaker for the morning’s event and presented on the topic of “Regulatory Outlook”.

Rodrigues started her presentation with an argument for and against continuous review and tightening of the regulatory environment and the pro-regulation arguments outweighed the negative as it prevents agents’ risk of failure.

According to Rodrigues the intention of more stringent regulation by the National Treasury is to get firms to improve their conduct and ensure a sustainable industry through proper corporate governance and fair competition. It will also align with broader national policy of inclusion and transformation.

Rodrigues provided some background on the events leading up to the global financial crisis, and the reasons why such events should not be allowed to occur again from a governance point of view.

The proposed Insurance Bill and Binder Regulations was discussed and Rodrigues shared her view with regards to the intention, possible amendments, and time of the regulations being incepted.

The morning was concluded by a Q&A session to the panel of guest speakers followed by a lucky draw for the IIG International.  Congratulations to Clyde Troup from Frontline Underwriting Managers who won his space in the final draw to win a ticket, sponsored by Fulcrum, on the IIG International 2017 tour to Singapore and Hong Kong.

The IIG would again like to thank its sponsors Marsh and Sasria SOC who made the event possible.