More cedants seek reinsurance to curb earnings volatility: SCOR
More cedants are using reinsurance to reduce their earnings volatility as they attempt to make their businesses more attractive to investors in a low-yield environment, Jean-Paul Conoscente, chief executive of P&C reinsurance business globally at SCOR, told Baden-Baden Today.
Combined with demand for capital protection and solutions to solvency requirements, this is also driving higher demand for reinsurance.
“The demand for reinsurance is still increasing; not from increased severity cover, but rather from earnings protection,” Conoscente said.
“They want to protect the P&L as well as the capital.”
He explained that this trend is partly driven by the low investment yield environment. This continues to put pressure on re/insurers and forces them to focus on producing positive technical results.
“We are seeing companies increasingly seeking earnings protection. Insurers are interested in solutions that protect against large variations in their results. In the end, it’s a question of structure and price,” Conoscente said.
Several big natural catastrophes this year, including Hurricane Michael in Florida and Typhoon Jebi in Japan, are unlikely to affect the buying patterns of European insurers at the upcoming 2019 renewals, he noted.
“European insurance buying has not been influenced by the natural catastrophes that we’ve seen in the US and Japan. There may, however, be effects on pricing, as reinsurance prices trend upwards globally,” he said.
“In general, the programmes are very stable. It’s more about terms and conditions than the structure.”
This means, he said, the bigger focus at the renewals negotiations will be on pricing—and he is optimistic some increases might be possible.
“Discussions in Baden-Baden will be about pricing expectations and the capacity that programmes can attract at a given price,” he said.
“Loss-affected programmes will definitely see price increases. What is unclear is what will happen to loss-free programmes.”
More growth
In Europe, SCOR is looking to expand in areas where it has less exposure, such as casualty specialty in the UK.
“It’s an area of expansion for us in 2018 and our expectation is that this will continue to grow into 2019,” Conoscente said.
In addition, SCOR will seek expansion in Europe through deepening its relationship with clients and looking to increase its share on programmes. He noted, however, that the extent this is possible will depend on the availability of shares and the terms and conditions.
“We have an appetite for all lines. For clients that we want to partner with, we want to achieve growth across all lines of business—property, casualty, motor, and specialty lines of business. We are looking for growth across the range,” he said.
Another focus in the renewals will be around the inclusion or exclusion of emerging risks such as cyber, Conoscente said.
“Clients and brokers will want to discuss the restrictions or widening of terms and conditions,” he explained.
Cyber is arguably an area of great growth potential for the re/insurance industry. However, the risk is not yet well modelled and understood.
“Cyber is a risk that we, as a reinsurer, are concerned about. The question we often have is whether it is included or excluded from treaties. When it is included we want to make sure that we understand the exposures and that the clients understand the exposures they cede. We have a lot of discussions about this,” Conoscente said.
Reinsurers such as SCOR are particularly concerned about the potential accumulation of cyber risk in their portfolio.
“We have a team of cyber experts that has been working on accumulation scenarios to help us assess our overall exposure. We now have an accumulation scenario, as well as a view by industry, on the likelihood of anything being affected by cyber losses,” he said.
Having this data and information allows SCOR to take a different approach with clients.
“We have discussions with our clients about what we do and, in understanding more what they do, we hope to come to an agreement on the way forward,” he explained.
Clients should have robust risk management strategies in place to manage cyber risk in order to engage in the conversation, Conoscente suggested.
“It’s more difficult for us to write risks for clients that don’t have a risk management strategy in place to manage their cyber risk,” he said.
Reinsurers are particularly concerned about potential ‘silent’ cyber exposures contained in cedants’ portfolios whereby the client is unaware of its exposure.
“That remains a concern for us. When we have discussions with clients, if cyber risk is not excluded then we want to have a better understanding of what their true exposures are as they accumulate with the other programmes that we write,” Conoscente said.
“Cyber is a very young line of business in which the understanding and underwriting are still at the early stages. It is an area where the entire industry is struggling.”
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