2014 | ADVERTISING KIT VOLUME 36 01 ISSUE NO. 1 / 2013 PRINT POST NO. PP 342748/00014 PP NO. POST PRINT

FEATURE: SPREADING OUR WINGS: ANZIIF OPENS IN CHINA 展翅亮羽 澳新学会在中国开业

INDUSTRY LEADERS’ VIEWPOINT REINSURANCE: RIDING THE STORM? REINSURANCE TRENDS David Sandoe OAM: former Finity GM After riding out the storm of the There are a number of challenges looks back on forty years and forward GFC and record catastrophe losses, awaiting the industry in this changing to a new life promoting men’s health. how will the industry cope in 2013? global macro-economic environment.

6 / TRENDS 7 / TRENDS

NATURAL DISASTERS IN AUSTRALIA tRENDS

Billion

SYDNEY HAILSTORM As Victoria balances on the precipice of the most 4.29 APR 1999 dangerous month for bushfires, ICA has released further information regarding damage bills across AUSTRAliA’S CYCLONE TRACY affected states. Tasmania claims continue to rise past 4.09 DEC 1974 $52+ the $52 million mark, while Victorians are yet to feel CoSTlieST the full extent of weekend burns, its bill sitting NEWCASTLE EARTHQUAKE ANZIIF JOURNAL Million around $9 million (and climbing). 3.24 DEC 1974 TAS nATURAl

Source: Insurance Council of Australia, QUEENSLAND fLOOD www.insurancecouncil.com.au. DiSASTeR 2.38 DEC 2010 1.74 HUNTER VALLEY STORMS MORE tHAN tHREE HUNDRED PEOPLE JUNE 2007 ARE HOMELESS AS A RESULt OF tHE ASH WEDNESDAY – VIC tASMANIAN bUSHFIRES, ACCORDING 1.49 FEB 1983 300+ tO tHE StAtE GOVERNMENt. , CYCLONE YASI nSw4219 1.41 PeoPle Source: Western Magazine, www.westernmagazine.com.au. FEB 2011 HOUSE FIRES 1.26 BLACK SATURDAY – VIC The ANZIIF Journal is the official publication INCREASE FEB 2009 Suncorp has warned the Federal government to step up efforts limiting Last year was a dangerous year for house fires: in 2012 there were PERTH HAILSTORM losses caused by natural disasters – or risk insurance costs spiraling 1.05 NA tURAL 21 preventable fire deaths, 649 fire injuries and more than 4,219 MAR 2010 out of control. More than 420 claims have been placed for the fires in house fires in NSW in 2012. The latest Fire & Rescue NSW (FRNSW) Tasmania, with insured losses estimated around $42 million so far: MELBOURNE HAILSTORM DISAS tERS figures show small increases in the number of fire deaths and house claims almost doubling from the estimated $26 million. 1.04 MAR 2010 fires compared to 2011. The biggest increase was the number of fire Source: The Age, www.theage.com.au. injuries, up 33 compared to 2011. Nearly three quarters of the fire Indexed for inflation of the Australian and New Zealand Institute victims were male and nearly 30% of those were aged more than 65 years.

Source: NSW Government. Fire & Rescue NSW, Source: Insurance Council of Australia www.fire.nsw.gov.au. www.insurancenews.com.au. AFFORDAbILIty After the disastrous floods of 2011, the of Insurance and Finance (ANZIIF). ANZIIF insurance industry made a significant FLOOD DAtA bUSHFIRE effort to ensure flood cover was clear and available to those in areas of risk. However, Work to expand and centralise flood data for StRESSES just because it’s available, doesn’t mean future studies is well under way, according The recent bushfires in Victoria will it’s affordable. John Trowbridge, director to the Federal government’s response to undoubtedly lead to increased mental of the National Disaster Review, says that the Queensland floods inquiry. In a report health problems in a significant proportion the availability issue has been solved, to Parliament, then Attorney-General Nicola of those directly affected. There is is the leading provider of education, training but affordability is still a huge issue. He Roxon says the government has agreed in overwhelming evidence that disasters can is advocating that the government should full or in part with the 38 recommendations lead to a range of post-traumatic mental adopt a premium discount scheme and a relevant to the Commonwealth. One of the health problems. Over the past several publicly funded reinsurance pool to assist key recommendations of the Queensland decades, much research has informed us those most in need. Floods Commission of Inquiry is the creation about the array of psychological problems and maintenance of a “repository of data” arising from natural, and man-made, Source: The Australian, www.theaustralian.com.au. for a comprehensive flood study. disasters. and professional development services to the Source: Insurance News Australia, Source: Australian Psychological Society, www.insurancenews.com.au. www.psychology.org.au. Journal Vol 36 / Issue No.1 Journal Vol 36 / Issue No.1 insurance and financial services industry in

Australia, New Zealand and the Asia Pacific 12 / VIEWPOINT 13 / VIEWPOINT

“ I’ve worked for fifty years, with 42 of those in financial In 2002, I was invited to take up the role of General Manager at what was then called services/insurance, and have had a wonderful working life.” Trowbridge Consulting, later became region. Trowbridge Deloitte, and for the past eight years has been Finity Consulting, Q. David, you’ve been in the insurance Looking after half the world which is an actuarial and management- industry for more than forty years: In 1980, I was moved to Melbourne as an consultancy firm. where did you begin your career? assistant manager of a large branch. From I’ve worked for fifty years, with 42 of those A. I started my insurance career in 1971 as a there I went to Newcastle as deputy manager, in financial services/insurance, and have district inspector with the South British United and was later sent to the Auckland head had a wonderful working life. Now I’ve Insurance Company in Tamworth, country office, where I was one of two underwriters resigned from my full-time day job as New South Wales. That’s where I realised I who monitored the underwriting performance General Manager and a Principal of Finity The Journal is a professional issues-based, needed some insurance qualifications, so of all international operations. I looked after so that I can concentrate on my full-time I started studying with what was then called one half of the world for 18 months, while “night job” as the National Chair of the Australian Insurance Institute. Over the my colleague did the other half, and then Prostate Cancer Foundation of Australia. next few years I achieved my associateship, we swapped. The workload and travelling Pam and I also run the Sydney Adventist followed by my fellowship – and then my were intense. I was married then, with Hospital – Prostate Cancer Support Network, career took off. three small children. which has two meetings a month and a newsletter that goes to more than eight When I left school in 1962, I wanted to I completed my MBA at Auckland University, hundred recipients. be a vet, but my pass wasn’t good enough. came back to Sydney in 1986, and then Zurich bi-monthly publication, featuring articles from tapped me on the shoulder and I was appointed I thought the next best thing was a wool Q. How did your family cope Assistant General Manager in the technical broking stock and station agency, so I with all the moves? obtained a management cadetship with Elder division in Sydney. The career-development A. We’ve just downsized to our twenty-sixth Smith Goldsborough Mort. Subsequently, opportunities through the variety of roles home in 45 years of married life! The amazing a firm called Schute Bell Badgery Lumby I held over 15 years within South British part is we lived in our family home until just in Sydney offered me a similar job, and this United really prepared me well. recently for twenty years. So this indicates is where I met my wife, Pam. I did stints In 1989, I was appointed General Manager the pressure during those early years of all sectors of the insurance industry, including in Bathurst and Young, where I was a stock of the commercial division for the UK and travelling. We had the procedure down pat. and station agent. Ireland. I was in charge of 500-plus staff and Once I was appointed to a particular role, 18 branches, and did a lot of tripping around I was drafted into national service, and was we put our house on the market to sell it the UK and Ireland with regular visits to actually one of the fortunate ones – although quickly because it was always well prepared: Zurich, Switzerland. I had the opportunity I didn’t think so at the time – because I that was part of the formula. We’d arrive in to attend the IMD Business School in didn’t go to Vietnam with my mates as I had the new place and stay in a hotel while Pam Lausanne, Switzerland, to undertake a Zurich wanted to. I was allocated into the Psychology looked at about a hundred homes and created executive course. I also went to Northwestern general insurance, insurance broking, life Corps and fortunately was seconded to the a shortlist for me. We’d decide within two University in Chicago to complete another Pacific Island Regiment in Papua New Guinea, weeks, and by the end of two months we Zurich-sponsored executive course. which was a whole new experience, though would move into our new place because VIEWPOINT: These were exceptional opportunities and I had to convince my mates I was in the it took six weeks to complete the legals. INDUSTRY LEADERS Psych Corps for work, not for treatment! very beneficial to my career development. We couldn’t accumulate things; we couldn’t SHARE THEIR VIEWS. Zurich’s purchase of GRE Insurance Limited Pam and I were engaged during my time in have pets; we couldn’t have a boat; we brought me back to Australia in 1992 in the the army. After my discharge, we decided we couldn’t have a weekender; and I couldn’t role of Chief Operating Officer. Given just insurance and superannuation, loss adjusting, needed to see the world, so we travelled for play golf. However, we had everything four days’ notice to take up my post in nearly three years. We arrived home broke, else in abundance. D AVID Melbourne, I had to leave my wife and the in the middle of a big drought, which meant And of course when we were living overseas opportunities in the rural field were limited. children in the UK because our children were in school. Then, as a General Manager we came back to Australia each year, so we’d SA NDOE OAM As a stock and station agent, I had been take on other places to visit. We were always of Zurich in Sydney, I was heavily involved fairly successful selling crop insurance. This Former General Manager & in the merger of the GRE, National and taking the children out of school but they opened some insurance doors – and that’s Principal, Finity Consulting General, and Zurich from April 1992. were used to it. We had them keep diaries how I entered the industry, with the job offer which make fascinating reading. financial planning, risk management and Cancer diagnosis National Chair, Prostate from South British United. We moved from Foundation of Australia Tamworth to Gunnedah, and from there I Four years later, I was diagnosed with prostate went to the head office in Sydney. I was cancer and that was a whole experience one of two junior officers on the executive on its own. I was fortunate to be diagnosed floor, and it proved to be an incredible early, because the CEO of Zurich at the time experience. We had to understand wanted all his executive managers to undergo and communicate with all the branches, a medical check, and this is how it was workers compensation, as well as management, and also had to compose letters for the picked up. I had the radical prostatectomy executives to sign, so it was good training. and returned to work on the seventh week of recovery.

Journal Vol 36 / Issue No.1 legal and technical articles relevant to the wider Journal Vol 36 / Issue No.1 financial services industry. 16 / REINSURANCE 17 / REINSURANCE

fEATURE The Journal is read by: REINSURANCE: RIDING tHE StORM? “Extreme volatility made raising equity capital a very risky The reinsurance industry has ridden out the storm of the prolonged financial crisis and record catastrophe losses of 2011, recovering well in 2012. However, looking at recent natural disasters, and expensive business, always assuming investors could what will happen in 2013? Chris Klein looks at why the industry coped and how it can continue be found.” • the most influential members of insurance to cope if it manages its financial affairs with caution.

The financial crisis can be likened to a classical rather than scarcity, because of uncertainty Greek tragedy with its three phases of hubris, about the length and depth of the crisis. But nemesis and catharsis. Hubris was the inflation overall, reinsurance capital remained available of an asset bubble driven by complex financial when all around were losing their heads. and associated industries throughout instruments invented by clever people, aided and Indeed, unlike the banking sector, only one abetted by the rating agencies and coupled with reinsurer died. It was a small, peripheral player incontinent public expenditure. Nemesis was the and was killed not by underwriting, but malign bursting of the bubble as the high-risk assets asset substitution forced on it by its parent underlying collateralised securities defaulted, the Chris Klein, company. Its name was … Lehman Re. Managing Director, financial technology broke down and the spiral of Two other reinsurers also found themselves in Head of EMEA inter-bank debt unwound. Catharsis may be where Strategy Management difficulty, but again the problems arose not from Guy Carpenter. we are now, though it is not over, especially if underwriting, but by dealing in risky transactions Australia, New Zealand, Hong Kong and your name is Greece, Ireland, Spain or Portugal. on the asset side of the balance sheet. Fortunately, At the peak of the crisis in the autumn of 2008 the they were saved by other reinsurers and investors traditional debt and capital markets were effectively and did not have to take government handouts. closed. The TED spread1, i.e. the difference Expanding the analysis, the forty largest between the interest rates on inter-bank loans reinsurance groups listed by Standard & Poor’s and short-term US government debt, widened to (S&P) entered 2008 with US$311 billion of capital3. more than 18 times today’s level. The US 10-year During 2008, Guy Carpenter estimated that South East Asia double-A corporate bond spread widened to reinsurers lost about 18 per cent of their aggregate more than four times the current level. This was capital due to the effects of asset and catastrophe the credit crunch and it caused serious problems losses. But by the end of 2009, reinsurers had for banks, especially those lending long and recovered almost all the capital lost in 2008 as borrowing short. markets rallied and neither the wind blew nor The equity markets fared no better. Extreme the ground shook. Those top forty groups volatility made raising equity capital a very risky possessed US$309 billion of capital, just short and expensive business, always assuming of that with which they entered the crisis. investors could be found. The CBOE2 VIX index, Furthermore, of the forty groups at the start, which estimates future volatility based on strikes • over 5,000 insurance brokers and around 36 are still here. Of the four that dropped out, on put and call options, rose to five times three were going concerns that merged with the average level seen in steady bull markets. other companies and the fourth was relegated by The peak was more than double that seen in a faster growing competitor. And the credit quality previous crises such as the collapse of Long- of the reinsurers did not change much either. Term Capital Management and the Asian The rating agencies have taken the long view Financial Crisis of the 1990s. and have not been panicked into widespread 7,900 professionals from the general In contrast to the banking disaster, the reinsurance downgrading. There were some notable industry has fared well. The markets remained downgrades, but these were mostly only by one open, claims were paid, policies renewed, new notch. Since then, some have seen ratings restored products invented and new reinsurers opened. to pre-crisis levels and today there are more S&P The 1 January 2009 renewal was completed. Double-A minus, A plus and straight A reinsurers insurance sector. Prices were higher, but this reflected shyness than before the crisis.

Journal Vol 36 / Issue No.1 Journal Vol 36 / Issue No.1 PROFILE

WHO ARE OUR READERS Professionals from all areas of the insurance and Distribution and readership: financial services industry including: • The ANZIIF Journal reaches an audience of more + Insurance broking than 60,000 financial services professionals. + General insurance • The Journal is a professional issues-based + Life insurance publication which remains relevant over time. + Reinsurance ANZIIF’s Journal survey showed that 75% + Insurance agents of members keep their copies as a relevant + Loss assessing research and information tool for years. + Claims adjusting • ANZIIF members regard the Journal as + Underwriting the leading informational magazine within + Risk management the insurance industry, providing up-to-date + Finance and investment technical and general information contributed Department Managers and their teams in: by recognised leaders in their fields, and highly + HR and Training relevant to the broad spectrum of the industry. + IT + Property and Facilities

As the Journal is considered the leading publication within the industry, it also proves invaluable to members of various associated professional groups including:

+ Accountants + Architects + Engineers + Lawyers

DEMOGRAPHICS

45.9% of readers hold a management role 48% General Insurance sector

10.7% are in an executive position (CEO/CFO/Director) 31% Broking sector

33% of readers earn over $100,000 per annum 11% Other1

8% earn over $200,000 per annum 10% Claims/Loss Adjusting

Note 1 Life Insurance, Reinsurance, Risk Management and Financial Planning.

WHAT DO OUR READERS THINK?

75% of readers keep the Journal as a reference

65% of readers highly value the Journal

+ The pass-along rate of the Journal is 1 to 4 equalling a total readership of over 60,000 financial services professionals.

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