Following the devastating weather events so far in 2023 there has been some discussion around the strength of our insurance industry and the part played by reinsurance.
So, we talk to our Head of Reinsurance Chris Bailey to share more.
So, what is reinsurance?
It’s insurance for insurance companies. FMG uses over 30 different reinsurers for our programmes. They take their share of the risk and diversify it with their risk around the globe. They work to a plan that things won’t go south in every geographic region at the same time, and that is how they manage to pool the risk of the many.
So they take a long term view like FMG does?
They do. Several of the reinsurers we use have been business partners of FMG for several decades. However, they are commercial entities with shareholders who require a return on investment. They must provide a suitable profit. If frequency or severity of losses are outside their pricing parameters, or risk appetite, they will reduce or withdraw their support.
Are they supportive of the work FMG does and our rural focus?
FMG’s rural and regional spread is complementary to the business they do with other insurers – including the EQC. FMG is quite different in our direct sales and service model, and inhouse assessing and claims service. We have a good understanding of the risks we insure and the people we insure. An insurer that is close to its customer and has a clear and consistent business model gives reinsurers confidence to support what they do.
Are these weather events having an impact on the reinsurance market?
Losses always have an impact on reinsurance pricing, especially in the first year or two after the event. The recent storms are in the context of extreme weather events – especially flooding – around the globe in recent years. Unexpected frequency and severity is making reinsurers review and reprice their risk appetite.
Can we have confidence that Reinsurers will continue to support FMG and the wider New Zealand insurance industry?
Reinsurers are looking for profitable business. Insurers who are able to demonstrate they understand the risks they have assumed, and the potential loss frequency and severity should always attract reinsurer support. Also important is assurance that natural hazards are well managed i.e. robust building codes and appropriate land zones. Within this context, FMG is very well placed within the New Zealand market.
