JLT Re again warns on potential reserve inadequacies

With so much reinsurance capacity available, brokers and reinsurers should use the opportunity to be more creative and come up with solutions, David Flandro, global head of analytics, told Baden-Baden Today.

At this year’s Baden-Baden reinsurance conference, there has been a lot of talk about how the government should step in and fill the loss gap.

Flandro suggested that it should be a broker’s job to come up with new ideas for cover and for clients

“I think that we in the industry should show our mettle now, this is the time to do it. And find that business that helps insurers and by extension helps people who need risks covered,” he said.

However, Flandro said that this doesn’t mean there isn’t a role for governments to fill residuals, in particular in areas such as terror and flood; just that there is an opportunity now for brokers to find creative solutions to deploy the excess capacity in the sector.

Flandro believes there is a lot of scope for reinsurers to help clients with products such as adverse development covers and loss portfolio transfers.

“It is important to be able to look across the entire capital structure in order to make informed decisions. Reinsurance is obviously highly competitive right now, but some smaller insurance carriers are even starting to look at subordinated debt issuance as a way to get a better solvency capital requirement under Solvency II. And those are all early indicators of a change in the sector’s capital position,” he said.

Flandro notes that JLT Re has previously warned of the dangers of reserves being inadequate in the industry at this point in the cycle, which could drive demand for adverse development cover.

“We have seen companies very early in the third quarter reporting cycle showing some reserve deficiencies; what we want to do is help clients find opportunities for cover before issues become obvious,” he said.

“What we don’t want to do is sit back and say nothing’s changed and the answer is simply to wait it out and let the government fill the loss gap. Brokers must find opportunities to do this now, both on the primary side with new underwriting ideas and on the reinsurance side with more innovative protections.”