Chicago — Despite taking a couple major body blows in the year past, the property/casualty business model remains strong going forward, said CEOs participating in a panel discussion at the 13th annual Property/Casualty Joint Industry Forum, held in New York. Dubbed the “View from the Inside Looking Out” and moderated by Dr. Robert Hartwig, president, Insurance Information Institute (I.I.I.), the discussion the examined how the financial crisis and natural catastrophes have shaped the industry.
“We had the double whammy in 2008,” said Charles (Chuck) Kavitsky, chairman, president and CEO of Novato, Calif.-based Allianz of America Corp. “Between the catastrophe issues that we had to deal with as well as what was happening in the financial markets, we had a pretty significant test and the industry did great.”
Likewise, Pierre Ozendo, CEO-Americas Division, of Zurich, Switzerland-based Swiss Re, praised the P/C industry’s resilience and noted that it was derivation from, not adherence to, the traditional business model that got insurance companies in trouble. “This industry is focused on a business model that has been proven over hundreds of years and continues to be proven today,” he said. “Maybe we shouldn’t dabble in things we don’t know very well, but we do know our business model very well.”
Indeed, Franklin (Tad) Montross, chairman and CEO, of Stamford, Conn.-based General Re Corp., said that 2008 should remind insurers that diversification is not a strategy in and of itself. “Diversification is a byproduct, and the operational risk associated with diversifying portfolios is much greater than the diversification benefit,” he said.
Another overdue area for self-examination, according to Montross, was the industry’s reliance (or over reliance) on catastrophe models. “It’s certainly an area where there’s a dependency that we really need to understand,” he said.
Looking ahead, one large challenge to confront in 2009 is the rising cost of capital. With the capital markets are practically closed, borrowing costs have become prohibitive, the panelists agreed.
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