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Reinsurance
Saturday, September 1, 2007
Big drive for future growth

Munich Re of Africa (MRoA) posted strong underwriting results in the short-term and long-term segments of its business for 2006, an outcome that CEO Andreas Kleiner says reflects not only the overall economic health of the region but also improved processes within the business.

The group announced net income after tax had amounted to R242 million on a gross premium income of R2.5 billion. This is the third year running that MRoA has reported strong results and the announcement follows news earlier this year that the parent company – Munich Re Group – posted its best result in history for 2006 with an overall profit in excess of €3,5 billion.
Mr Kleiner said that worldwide, last year was an exceptionally profitable year for reinsurance. In Africa, business had been buoyed by strong growth in the region – particularly in resources-rich countries such as Angola and Sudan where the insurance industry has grown consistently at rates of 30% or more in the last five years. Accelerated economic growth in South Africa and innovation and discipline within the group had also played a role.
“ Whilst the premium volume dropped by 3.8% from R2,61 billion to R2,51 billion last year, the financial bottom line performance was highly satisfactory,” he said. “Evidence that MRoA’s policy of concentrating on a well-balanced portfolio and risk-adequate pricing continues to pay dividends.”
He said that worldwide market discipline had generally prevailed in the reinsurance industry and that this had contributed to staving off the long forecast slide into a soft market cycle. “The reinsurance world has changed substantially over the last few years. Underwriting has become significantly more analytical, management tools more sophisticated and, last but not least, external pressures from rating agencies, regulators, investors and analysts have increased considerably,” he said. “All these developments lead to the expectation that the previous hard and soft market cycles will reduce markedly in their severity.”
As part of this disciplined approach to business, Mr Kleiner said that MRoA has, along with its parent company, made the business fit for the challenges of the future with integrated risk management and active diversification.
“We have for instance increased the number of cedants with a premium volume in excess of R100 million from three in 2004 to six in 2006 and have significantly reduced the dependence on individual cedants in both non-life as well as life,” he said.
Also making a solid contribution to the bottom line at MRoA is the newly introduced, Innovation Initiative – a framework to manage new ideas designed to harness innovation within the group and create new wealth.
“Our staff has responded enthusiastically to this initiative introduced in 2006. As at May 2007, we had about 55 innovative business ideas logged, five have already been successfully implemented. This includes concepts to improve operational efficiency such as a new way of backing up data – where we have been able to reduce the recovery time from 2-3 days to a few minutes.”
Looking ahead, Mr Kleiner said that MRoA believed that after years of declining premium volumes the traditional reinsurance market in South Africa will return to organic growth over the next few years – also aided by the introduction of Financial Condition Reporting – and that this could result in attractive business opportunities for reinsurers. He said that thanks to its in-depth market and technical knowledge, Munich Re of Africa is well placed to capitalise on these trends. However, he added that they also expect that its sources of profitable business growth will predominantly lie in markets outside of the country as well as in the “creation of new markets” - meaning the venturing through innovation into uncontested market space where the current competition becomes irrelevant.
“We believe that we have laid a solid foundation and anticipate that we will generate between R100m to R150m of profitable new premium volume per annum out of innovative solutions going forward,” he said.
 

Copyright © Insurance Times and Investments® Vol:20.8 1st September, 2007
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