Litigation could follow storm claims
Losses from hurricanes Harvey and Irma could take a long time to be resolved and could hit lines of business the industry may not have considered, according to John Warwick, managing director and partner, ILS Capital Management.
He said there will be high motor claims in the aftermath of the storms, and mould claims could also emerge after flooding. In addition, litigation is possible in cases around the decision by the authorities to open dams during the storms.
There is precedent for this in other countries. In Australia litigation against the Queensland government and the bodies that run the state’s dams is ongoing as the result of a multimillion dollar class action lawsuit brought over the way two dams were managed during 2011 floods in the country.
“There are a lot of moving parts and these claims will take a long time to settle,” Warwick said. “You could have property loss suddenly also becoming a liability loss.”
Such scenarios could also mean collateral is tied up for many years while claims are resolved. But he believes investors will not be deterred from reinvesting in the sector. “Many have been waiting for a market-changing event; they will reload,” he said.
He added that he does not expect the losses necessarily to cause a hardening of rates but it should certainly stop them softening.
ILS Capital Management is receiving increasing interest from buyers more willing to use its bespoke solutions to “plug gaps” in their portfolio. Warwick said that while the company, whose portfolio comprises one third marine business, one third international property and one third US property, does not write the big cat lines many buyers need, it can assist on specific issues with reinsurance coverage.
“We like to do things a little off piste and assist buyers with specific problems,” he said. “Everyone has different problems and they are more open to exploring a collateralised solution to address them.
“They are increasingly comfortable with ILS or collateralised solutions as they don’t have to worry about someone else’s balance sheet, and so are their CFOs.”
Warwick added that ILS Capital Management is enjoying steady growth and intends to keep it that way, rather than take on large amounts of investors’ money it must then find a use for. He expects growth of between 15 and 20 percent in 2018, taking it to around $350 million.
“We never wanted to front-load the business with investment, meaning we had to write business.
“We want to grow at a manageable pace and I think we are doing that,” he concluded.
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