27 October 2015 News

Endurance’s Donelan: ‘who is holding the ILS bag?’

Christopher Donelan, chief underwriting officer of Endurance Re US, has questioned whether third party capital reinsurance providers will pay out on claims in the wake of a big catastrophic event.

The firm’s US president reopened the debate surrounding the viability of what remains a relatively new form of risk transfer by declaring that he didn’t know who was “holding the bag” when it comes to insurance-linked securities (ILS).

“I have questions about collateralised insurance and who is ultimately holding the bag,” he said. “I know it is ‘collateralised’ but there is a whole lot of collateralised business out there. Are all those collateralised units—and it is a big number—legitimately collateralised? Is this going to be easy to collect?

“Say there is a trillion dollar event. Is it going to be as easy as it sounds to collect claims payments? I don’t know. As far as I know the numbers of collateralised units are not being tracked.

“Is there a willingness to pay here? I don’t know. I’m not sure if it is a problem, I just don’t know.”

Despite his reservations over that form of risk transfer, Donelan was very positive about some of the opportunities open to the industry.

He identifies flood risk as a product with a “huge upside” and he can’t understand why firms are not already writing this risk. He believes it should be privatised as it is “something that we do for a living”.

“It’s risk and it’s insurable and it should have a price,” he said. “Flood is a product we should be doing as an industry—there is no good reason why we shouldn’t.

“It’s insurance with all the characteristics of an insurance product. Some people may say certain areas may not be insurable, but I think everywhere is insurable. It’s going to be an interesting product going forward.

“Anything is doable at the right price,” he said.

He admitted that the shift of such risks from governments to the private sector would not happen overnight. “But I do think it’s going to happen,” he said.

“I would hope that within the next 10 years we will be able to solve this issue.”

Donelan went on to say that the key to surviving in any market environment—good or bad—is the quality of the people you surround yourself with.

“One thing that you can control is people. When you have talented people and hard work it’s always going to work out and that’s the key to survival more than anything.”

He slated the industry for not doing more to nurture talent, particularly within the reinsurance sphere,

“There’s plenty of talent out there but it has not been developed. We haven’t had training programmes, we haven’t had mentoring situations and I am not sure how many people we have added to the business over the years. We have seen more sophistication around hedge funds, for example, which is good—it ups everyone’s game,” he said.

He revealed that he has become a late convert to the discussions surrounding cyber insurance after originally being against product development in this area. “I am starting to come around a little more. We are getting smarter at it,” he said.

At the end of the day Donelan is an old-fashioned insurance man. “We underwrite and the chips fall where they fall, it’s as simple as that,” he said.

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