UNDERWRITING PROBLEMS

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UNDERWRITING PROBLEMS IN CURRENT MARKET CONDITIONS
Svetlana CHEPELEVA Deputy Managing director,
Chief underwriterUnity Re Ltd. 01 October,
2007Dagomys, Russia
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• Basic market statements (2006)
• Direct insurance GPW (non-life) 22,29 ????.
  (? 23,1)
• Inward R/I GPW 3,05 ????. (? 20,2)
• Inward R/I / direct business 13,7

• Basic market tendencies in Russia
• strengthening of financial abilities of market
  players
• decrease in scheme share of business
• further MA development
• higher requirements for capital and portfolio
  structure.

Price market trend ? underwriting problem as one
of the most negative tendencies!
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• International market
• 2006 loss ratio stabilization, slight market
  softening
• positive dynamics of profits and combined ratio
• price trend (rates) stabilization.

• Russian market
• consumer-oriented market and dumping policy
• claims, claims and claims
• soft in-ward R/I business from CIS neighbours
• MA western orientation
• technical u/w problems.

4

• Consumer oriented market and dumping policy
• current market consumers market not sellers
  one
• dumping is already a development strategy not
  just a tactical tool for competition struggle in
  the market
• extensive development (blowing up NPW without
  paying enough attention to service, quality and
  financial back)
• non-profiled in-ward reinsurance and
  reciprocity
• no market barriers for actually bad risks.

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• Losses
• large claims-portents Azovsteel, Protek,
  Vestel, Admiral
• a rapid growth of classic fire claims
• unpredictable results for new promoted
  classes, e.g. title insurance and state-contract
  liability insurance
• stop writing of some classes of business
  (marine, aviation).
• Soft business from CIS
• a very formal approach to insurance ?
  orientation for a minimum policy premium
• a dumping squeeze of insurers with no market
  barriers for bad risks ? a significant lack of
  economical element in the tarification
• a final burden of the above is transferred to
  reinsurer!

6

• ?A and western orientation
• much of business is reoriented to foreign
  markets
• need for capitalization rise ? leaving the
  market or searching investor who is often
  interested in developing scheme business not
  the classic (re)insurance

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• Technical underwriting problems
• CAR placement on annual basis covering a
  partly completed construction rates do not
  relate to period of construction
• agriculture risks a lack of adequate
  documentary base and practice for handling
  accounts, controlling claims
• short periods of coverage with no short-rate
  calculation applicable
• Property/CAR rates are applicable to limit of
  indemnity not to a whole insurable value/TSI
• a lack of specialized u/w approaches to
  different types of property (rate for
  metallurgical plant rate for office building)
• stocks warehouses the capacity of tens of
  million dollar is requested without an adequate
  MDP applicable.

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Estimated R/I capacity - Russia
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• Factors of further development
• forthcoming of the next phase of insurance cycle
  ? firm market and rise of loss ratio!
• large man-made disasters predicted for nearest
  future
• MA and capitalization ? need for RoE growth ?
  struggle for market share, clients and sales ?
  R/I as the alternative tool for earning ? rising
  NPW ? dumping!
• forcing of market position of foreign global
  insurers.

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Thanks for your attention! Questions and
comments Mob. [phone] E-mail re_chesv_at_r
eso.ru