Generali will re-enter ILS but balance with reinsurance

Generali will continue to access the insurance-linked securities (ILS) market, especially to offset European windstorm risk, due to the attractive terms available. But it will also balance this with traditional reinsurance, seeking the most effective mix for its portfolio.

Franco Urlini, group head of reinsurance at Generali, which issued its first cat bond last year, told Monte Carlo Today that having monitored the ILS markets for many years, the use of cat bonds was made possible when the company centralised its reinsurance purchasing programme.

Before this, a concentration of Italian earthquake risk in its portfolio made such a deal less viable. Because reinsurers see this risk as an “attractive diversifier” on their books, it was already benefiting from very competitive rates in the traditional market.

“The reason we did not enter the market before is mainly related to the peculiarities of our portfolio, which used to be largely dominated by Italian earthquake exposures,” Urlini said.

“We now have important exposures in European windstorm that the ILS market offers attractive terms for. In the future we will continue to look at the traditional market as well as the ILS market and at any new products available, and we’ll always use the most effective and competitive tools available, including cat bonds.”

Expanding on Generali’s reinsurance-buying habits, Urlini said that these have changed over time as a result of soft market trends and Solvency II requirements.

“Reinsurance buyers have found opportunities to improve their protection by enlarging the scope of cover, with both higher capacity and improved terms such as wider hours clauses or pre-paid reinstatements,” he said.

He added that quota share protections aimed at providing capital relief have become more popular and widely offered by the big reinsurers.

“Buyers have also created more structured reinsurance programmes which use a combination of traditional reinsurance and ILS.”

Speaking of the expected requirements at the January 1 renewals, Urlini said the July 1 renewals showed wide capacity available and strong competition from the reinsurer side despite some refusals on particularly aggressive offers.

“Given the lack of significant catastrophe losses from now to the end of the year and in the presence of positive results in the reinsurers’ balance sheets, expectations are for a market still favourable to the buyers.

“Improvements of terms will still be possible especially when focused on the scope of cover such as terrorism, hours clauses, reinstatements, etc,” he said.

“We still see the market as a buyer-favourable framework and we have the feeling that recent mergers and acquisitions will push reinsurers to fight in order to maintain or improve their present positioning in the market.

“The challenge for Generali, as a buyer, will be that of achieving the most attractive terms and conditions by keeping a high level of quality and maintaining the consolidated relationships with the key players in both the traditional and the ILS markets.”