More casualty risks could be transferred to capital markets
More casualty business could be transferred into the capital markets as the structures develop and mature and the appetite of investors increases, Andrew Newman, president and global head of casualty at Willis Re, told Monte Carlo Today.
“The capital is there, the appetite from investors is going up. There was a very innovative transaction last year called Horse Capital, where Generali issued through Willis a capital instrument, which acted as a stop loss for its pan-European motor portfolio,” said Newman.
“It was interesting that the offering was oversubscribed, and as a capital instrument it was priced very competitively.”
Newman admitted that transferring casualty risk into the capital markets is more difficult for two reasons: the long duration of many exposures; and a less developed risk-modelling framework for these risks.
“After three decades we have almost market harmony about the methodologies used on property-catastrophe risks,” he said.
Overall, Newman said, the pricing and capacity environment in casualty means that rates are healthy.
“My definition of a hard market is where technical pricing is exceeded. The market-clearing price for casualty transactions is higher than technical price—purely because of supply-demand imbalance—that’s my definition of a hard market,” said Newman.
He said that profitable business is seeing more competition, while the rates on unprofitable lines are correcting, noting that auto liability is enjoying rate increases on this basis.
In the UK, he noted that the market corrected after the March 2017 Ogden ruling increased the guidance for compensation payments to claimants.
“That changed the perception of profitability—so what did the market do? Pushed prices up for customers, and the reinsurance transactions that bore the brunt of it increased exponentially,” he said.
High excess casualty rates are also stable, Newman added.
“Re/insurers are looking to preserve the allocation of their portfolio to that segment, because the dynamics are favourable. To that extent there is no price increase.”
