Collateralised reinsurance seeks longevity risk
The collateralised reinsurance market in Guernsey is seeing a rise in the introduction of less modelled risks, a change in the types of contracts being requested and an increased interest in longevity risk.
Speaking at Guernsey Finance’s ILS Insight event in London, Justin Wallen, managing director of Hexagon PCC Group outlined these trends, while panellist John Rowson, executive director, Aon Insurance Managers, highlighted the interest in life securitisations.
“We are certainly seeing a movement toward less modelled risks because funds want diversification and are seeking higher rates. Over the last 12 months, most business has still been in the property cat space, but we’re starting to see terrorism, war, marine, energy and crop come into the market,” said Wallen.
“We’re also seeing an increase in quota share on a book of business, which is allowing relationships to be formed with the cedants, and Lloyd’s Syndicates being provided with capital via protected cells.”
Rowson echoed Wallen’s views about the trends being seen in the market, adding that in a bid to seek out diversification, life securitisations were gaining interest.
Stewart McLaughlin, account director at Willis Management, said that reinsurers are opening up to the idea of hedging deals with longevity risk. He also said that reinsurers are keen to enter the market, which will see a healthy pipeline for the next five years.
Martin Bird, senior partner and head of risk settlement at Aon Hewitt, said that the concept of these longevity deals was an interesting one, but doubted the level of activity that the market would see.
“I’m not sure that we’ll see lots of deals as the level of complexity goes against the UK pension ideals, however, we may see fewer, larger deals like the recent BT one,” he said.
Ben Canagaretna, group chief actuary at Barbican, said the company’s interest in collateralised reinsurance peaked in the marine sector following the Costa Concordia disaster.
He also added that innovation is driving entry to new areas and said that the industry now faced the question of how to service the abundant capital.
“We need to look at product design, technology and reducing the cost of sale,” he said.
Rowson agreed. He said that the high level of capital must be used to penetrate markets which are currently uninsured or have a very low insurance uptake.
McLaughlin concluded by saying that the industry was adapting and must continue to do so. “12 months ago we hadn’t talked about longevity at all and now we’re all here discussing it,” he said.
