Irma will focus rating agencies on reinsurers’ ERM performance
The current hurricane activity, which may continue during the rest of the year, could prove to be an acid test of reinsurers’ enterprise risk management (ERM) strategies, Stuart Shipperlee, partner at Litmus Analysis, told Monte Carlo Today. This, as much as claims levels themselves, could have a major impact on reinsurer ratings.
Of 19 reinsurers that S&P Global assesses in what it calls its global peer group, six have the highest possible ERM score, 11 have the second highest score, and the remaining two of the 19 have a healthy score.
“The current S&P view is that the reinsurance industry has very robust ERM. Indeed, they stress that as their first point in their explanation as to why they continue to have the reinsurance industry at a stable outlook, despite several years of very poor underwriting and pricing conditions. It has been the central plank of the maintenance of stable reinsurer ratings,” Shipperlee said.
Reinsurance is the best performing insurance industry sector for ERM quality, according to S&P. Shipperlee suggested it’s similar for AM Best’s ratings, which are underpinned by their confidence in the industry’s ERM.
A key point Shipperlee noted is that ERM has been a rapidly developing skillset in the reinsurance industry, and it seems to have done a thorough and complete job exercising that knowledge and developing it.
“That rapid evolution has meant that it hasn’t really been tested in a while. We had 2011, and to a certain degree 2012, but a great deal has happened since in the development of reinsurer ERM,” he said.
“Even if Irma turns out not to be the truly big one in terms of a reinsurance cat event—which at this point we don’t know—it will certainly have a strong chance of shining a spotlight on whose ERM has proved to be effective.”
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