Spending seven years as a reinsurance journalist is not the stuff of the average Sydney boy's classroom fantasy. But working in the London insurance market and travelling around the world covering events like Hurricane Katrina, September 11 and the long, slow burn of asbestosis has been fascinating.
Quitting journalism to go into PR has lead me to look back at some of the more fascinating stories I have covered. The collapse of Australia's three reinsurers in quick succession ranks up there. So does being leaked internal documents from the US Department of Homeland Security, two months before Katrina, showing how ill-prepared they were for a major hurricane to strike in the Gulf of Mexico…but that's another story.
But the most intriguing of all involves Australia's largest insurance company, then still called NRMA, and how Stephen Mayne and I saved it $300 million.
For those who follow the Australian financial scene, few could fail to recall the misfortunes of ReAC, the ill-fated New Cap Re and the awful mess the reinsurance arm of GIO managed to get itself into.
When those three decided that taking reinsurance business just wasn't worth it, you would think that Australian shareholders might have been spared further ventures into the unknown. But you would be wrong.
Despite its own demutualisation not long after this catalogue of woe, and thereby acquiring a shareholder register of ‘Mums & Dads' not dissimilar to GIO's, NRMA (as Insurance Australia Group was then still known) had decided that its little-publicised foray into the world of ‘inwards reinsurance' would continue. Sources confirmed at the time what the few figures made available in NRMA's annual report hinted at; reinsurance was not a happy venture for the company and losses from inwards reinsurance were mounting.
Despite this, NRMA's head of reinsurance told me that the company would continue in the market. They justified it saying that it was a favour to its own reinsurers. But a quick read of US returns seemed to indicate that this was not entirely the case.
So, here was a news story: NRMA, the last Australia-based insurance company dabbling in the world of reinsurance, making losses on a line of business it didn't need to be writing. Why was it bothering?
At around the same time, I was reading on Crikey that Stephen Mayne was planning to attend the upcoming AGM and ask some questions. I thought the article I had written on the topic would give him some good ammunition. Stephen went along and asked why the company was still writing reinsurance business. He told me afterwards: “They certainly seemed pretty jumpy about it.”
Indeed, so. Their response, that it was under review, was covered in most of the country's newspapers… and read by its shareholders.
About a month later, the company announced that it was pulling out of the market. Its long, convoluted reasoning citing “market conditions” and “future plans” reeked of ‘we don't want any more articles about this in the press'.
Confirming that the decision to exit reinsurance was, in reality, a genuflection to shareholder sensitivities was always going to be difficult. But on a trip to Sydney a chance conversation with an adviser at IAG did just that.
Indeed, he confirmed, it had been adverse press coverage of the AGM that had been behind the company's decision to quit. “Wasn't the company a little resentful at being forced to do this by the threat of bad headlines, especially as the reinsurance market was now picking up,” I asked some time in 2002. “Quite the contrary,” he replied. “If we had stayed in the reinsurance game we would have been exposed to the events of September 11. We have calculated that by exiting reinsurance when we did, we saved ourselves $300 million.”
“So, you're saying that if ‘reinsurance' had never appeared in the newspapers it is likely your contracts would have been renewed?” “Absolutely,” he said.
Sometimes you wish you could send an invoice.
* Jason Groves was, until 2005, editor of The Review - Worldwide Reinsurance
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