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A Global Conversation
Expense Accounts

Insurance industry experts discuss the causes and impact of regulation and weather events on expenses with A.M.BestTV.
  • October 2018
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Fred Eslami

Fred Eslami

“The impact from natural catastrophes in 2017 on the captive sector] was a couple of points on the combined ratio. The hurricanes in Puerto Rico, Florida, Texas, had some effect on them. Overall, the five-year averages still beat the commercial casualty market, 80 versus 88.

That's one of the key areas that they are strong. In terms of loss and loss adjustment expenses, they're typically lower than the casualty composite because, for the most part, especially if you're a single-parent captive, they don't use agencies.

For the risk retention groups, or the group captives, it's limited, and it's a regular business expense that they have to dole out.”

Fred Eslami
Associate Director
A.M. Best


Catherine Thomas

Catherine Thomas

“It's two types of expenses, both the operational expenses associated with setting up these new [EU] subsidiaries [to conduct cross border business] and the operational implications of that, but also capital costs as well.

There are capital costs associated with setting these up and potential reduction in capital fundability as well across group entities.”

Catherine Thomas
Senior Director
A.M. Best


Jef Lacson

Jef Lacson

“As a CFO, we're more concerned about the expenses [associated with cyberrisk]. First, of course, the preventive expenses that the company is putting in for cybersecurity tools, and some insurance coverage. The most important expenses that we're focusing on is the expenses related to incidents, which can cause millions of dollars for litigation, regulatory fines, and some, of course, part of it, extortion cost.”

Jef Lacson
Chief Financial Officer
AIG Philippines, Guam and Micronesia


Mike Reynolds

Mike Reynolds

“I think you do see some [legal regulatory economic issues] take place, particularly in the catastrophe-affected zones such as Florida. We're seeing significant loss adjustment expenses and legal fees really because of just surged demand in relation to all of the activity that needs to take place in those zones. All of those costs obviously push up the costs of reinsurance ultimately. It's all contained in reinsurance recoveries and does have an effect on that.”

Mike Reynolds
Global Chief Executive Officer
JLT Re


Elizabeth Casas

Elizabeth Casas

“The oil price in 2015 drove oil companies to reduce the amount of insurance they bought. We went from $108 a barrel in 2014 to $27 a barrel in 2016. The pressure for the insurance company now is to streamline their underwriting processes so that they can reduce their internal expenses.”

Elizabeth Casas
Managing Director, Energy and Insurance
Verisk


Bobby Skrabal

Bobby Skrabal

“Catastrophes and an increase in non-weather water losses drove losses in 2017.

Not surprisingly, homeowners insurers are well-capitalized. They were able to absorb these losses. They were helped by a number of factors.

There's been favorable reinsurance pricing, terms, and conditions. That's really driven by an abundance of capacity right now in the reinsurance market. Traditional reinsurers are very well-capitalized.

There's also been inflows of alternative capital that have maintained that favorable pricing for homeowners insurers. There's also been improvements in underwriting analytics that have really helped homeowners insurers with their risk selection in recent years.

These factors are what led to the strong underwriting results prior to this year for the previous four years, which was one of the best stretches we've seen over the past quarter century.

They've invested in new systems. That's really driven down their expenses. We've seen a drop in the expense ratio over the past five years.

Also, although independent agents are still the main distribution channel, commission and brokerage expenses have been declining in terms of the ratio as insurers have aligned agent compensation with performance metrics.

These factors are what drive our favorable view of long-term operating performance for homeowners insurers.

That along with strong risk-adjusted capitalization and various risk management initiatives are what drives A.M. Best's stable outlook for homeowners insurers.”

Bobby Skrabal
Industry Analyst
A.M. Best


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