Irma, Harvey risks not reflected in price
Despite the fact that scenarios similar to hurricanes Irma and Harvey had been included in underlying models, prices have not reflected the risk—and this must now change, Umberto Gavazzi, SCOR’s chief underwriting officer, treaty P&C, told Monte Carlo Today.
Events such as Irma were included in models, “but the model is one thing, the other is what you find in the market”.
“Large loss events such as Irma and Harvey cannot go down unnoticed. The market has to react,” Gavazzi said.
As Irma approached Florida, cedants were hastily looking for back-up coverage, thinking that they may have underwritten too much risk in that part of the world and could be left exposed.
“When a perfectly modelled hurricane causes such a reaction, there is an issue in the market,” Gavazzi said. “I hope this will serve as a lesson,” he noted.
Reinsurers have been warning for some time that the rates in property/casualty were not sustainable. Market observers are pointing to the fact that the profitability of reinsurers is also falling below the cost of capital.
“The intrinsic profitability of the industry, once you have outstripped the reserve releases and normalised for an average cat loss burden, is not good enough to attract fresh capital, unless the market re-adjusts its pricing following the events,” he noted.
After the hurricanes, SCOR plans to push harder to achieve higher prices in the nat cat P&C market. Gavazzi believes that after the expected large losses from the hurricanes, the environment will be more conducive to rate increases.
The French reinsurer still wants to grow in the US market as it aims to catch up with the two global market leaders: Munich Re and Swiss Re. SCOR wants to rebalance its book, which is strong in Europe and Asia but less so in the US.
Gavazzi believes that it is a good moment for SCOR to expand, after having received a rating upgrade from AM Best.
“Much more business becomes accessible for us,” Gavazzi noted. Market participants see too much concentration in the reinsurance market and are increasingly finding SCOR to be an alternative, he said. More business is becoming available to SCOR through brokers than before, he added.
Gavazzi sees growth opportunities for SCOR particularly in long-tail casualty lines. “We are setting up new teams in Europe to boost our capacity in casualty and of course in the US,” he concluded.Get the latest re/insurance news sent to your inbox every day - Sign up to our free email newsletters
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