ACE Sets Out Vision for Sustainable Underwriting in the New Normal in Speech to London Insurance Market

Thu Mar 21, 2013 10:33am EDT

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LONDON--(Business Wire)--
The Chairman of ACE European Group, Andrew Kendrick, today set out his vision
for the future of profitable underwriting in a market environment which has
changed radically over the past 30 years. Speaking to over 150 members of the
London insurance market at an Insurance Institute of London lecture, Andrew
Kendrick described five characteristics of what he called the `new normal` for
insurers. These are:
Andrew Kendrick, Chairman, ACE European Group (Photo: Business Wire)

* Pure underwriting profit is increasingly difficult to come by - as evidenced
by just four years of underwriting profit for the US property and casualty
insurance industry since 2000. 
* A combined ratio of 100% isn`t what it used to be - with insurers typically
needing to target a ratio in the low-to-mid 90s to meet the cost of capital in a
low interest rate environment. 
* The industry is increasingly awash with `fast capital` - with the global
property reinsurance sector reaching record capacity in 2012 and increasing
interest from institutional investors. 
* The cost and number of natural catastrophes is continuing to rise - with five
of the 14 largest insured losses taking place in the past three years. 
* Securing new revenue streams is a challenge in Europe`s slow growth economy -
and risk managers are under increasing pressure to do more with less resource.

Andrew Kendrick said, "A permafrost economy, and a permasoft market and
investment climate, mean that the industry now needs to target a combined ratio
in the low to mid 90s to have a chance of delivering adequate returns. So an
insurer has two choices. Either keep doing business as you are and lower your
target ROE… or take a different approach to how you underwrite." 

He continued: "This is certainly about underwriting discipline - taking a
consistent approach and showing more grit and determination about making tough
decisions. But it`s much more than this. It`s about doing things differently in
a world where the `normal` has changed, and taking a positive approach to the
future. Perhaps we need to move beyond the rather vague set of aspirations we
call `underwriting discipline`… and work to a broader and more inspiring vision
of what I`d call `sustainable underwriting`." 

In his speech, Andrew Kendrick also described five potential do`s and don`ts of
sustainable underwriting in action:

* Do get smarter at capital allocation - tomorrow`s winners will be those who
invest effort in more sophisticated capital modelling, leading to better
underwriting, pricing and entry and exit decisions. 
* Don`t risk the asset side of your balance sheet - avoid the temptation of
making higher returns from more exotic investments by always remembering that
the client is buying the insurer`s balance sheet security. 
* Don`t wait for a mega-catastrophe to execute your pricing strategy for you -
underwriting cycles in different lines and geographies are less correlated than
they used to be, while stakeholders are increasingly resistant to using
exceptional losses as an excuse to raise prices in unrelated classes or
geographies, meaning underwriters need to take better control of pricing
* Do dig deeper into your portfolios - use good portfolio management to fix
problems but, importantly, also to identify new areas of profitable growth and
to increase clarity around risk appetite. 
* Do make the most of your data - real competitive advantage exists for those
companies that can capture and analyse data to get a more sophisticated view of
the business they are writing.

In conclusion, Andrew Kendrick said: 

"I have no doubt whatsoever that we are now operating in a new normal. Our
approach to underwriting needs to change. It might be a tall order, but
sustainable underwriting is not rocket science. Fundamentally, what it comes
down to is having a long-term vision, and a greater sense of determination and
purpose. The good news is that we have better information and tools to help us
than ever before." 

To read the full speech, visit


About ACE:

The ACE Group is one of the world`s largest multiline property and casualty
insurers. With operations in 3 countries, ACE provides commercial and personal
property and casualty insurance, personal accident and supplemental health
insurance, reinsurance and life insurance to a diverse group of clients. ACE
Limited, the parent company of the ACE Group, is listed on the New York Stock
Exchange (NYSE: ACE) and is a component of the S&P 500 index. Visit or

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Darragh Gray
Director of Communications and Marketing, EMEA
Tel: +44 (0)20 7173 7578
Luther Pendragon
Ruth Starling
Tel: 07812 089710 

Copyright Business Wire 2013

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