The power to move the market?
Five seasoned executives from the re/insurance industry discussed technology, talent, reserves and, of course, pricing in the context of potentially costly hurricane losses at the annual S&P Reinsurance Roundtable at the Monte Carlo Rendez-Vous.
The potential impact of the recent hurricanes was the focus of much of the discussion at the annual S&P Reinsurance Roundtable at the Monte Carlo Rendez-Vous, held yesterday (Sunday September 10) in the Fairmont Hotel.
Chaired by David Masters, director, S&P Global Ratings, the discussion also focused on the importance of recruiting a new generation of talent and reserve adequacy within the industry, but the potential impact of hurricanes Harvey and Irma kicked things off after Masters briefly summarised the rating agency’s outlook on the sector.
Masters noted that S&P published a stable outlook for the global reinsurance sector just weeks ago. He said that the rating agency believes Hurricane Harvey will likely be an insurance rather than a reinsurance event, meaning it remains comfortable with that stable outlook.
He added that while there are many pressures on the sector, S&P believes the industry is well buffered against shocks with good capital adequacy and enterprise risk management capabilities that are generally more advanced than in the primary market.
Effects of Harvey and Irma
Masters went on to ask the panel of experts how they believe hurricanes Harvey and Irma may affect the market and influence pricing in the upcoming renewals.
William Hawkins, analyst at Keefe Bruyette & Woods, said he expects that Hurricane Harvey will be enough to exhaust the catastrophe budgets of many of the biggest reinsurers in the second half of the year, but it will be no worse than that. “It will be on the edge of being an earnings event, but nothing more,” he said.
Stressing that the level of uncertainty around losses for both events remained very high, he said that, depending on its path, Hurricane Irma had the potential to become a more meaningful earnings event for the sector but still nothing more than that. He suggested this would affect pricing in the renewals “but we should not exaggerate how big the impact might be on global pricing. It would take a serious capital event to trigger a hard market”.
David Flandro, head of global analytics, JLT Re, agreed that the storms are more likely to be earnings events than capital events for the industry. But he also noted that they will make the industry reevaluate its ability to model such events, such was the unusual path Hurricane Harvey took.
“Things like that are very hard to model—there was a level of unpredictability about it. These events will remind people that randomness is out there in the market. Even the long periods when no hurricane made landfall was a level of randomness.
“I agree that the industry has the capital to cope with these losses but they could have the effect of changing perceptions of risk premium and the behaviour of management. Some companies will not have such a great year and at a minimum these losses should shore up softening in the 1/1 renewals, but much depends on next 24 hours.”
Mike Krefta, CEO, Hiscox Re, said it was pointless to speculate on the levels of losses from the hurricanes at this stage, but he added that industry players should not forget they are here to manage uncertainty and to help clients in their time of need.
“We need to ensure we find ways to proactively help the market after the event and help clients manage uncertainty going forward,” he said.
He added that the industry also needs to remember that this has been a very active start to the wind season—and there could be more storms to come. “We need to ensure we are helping clients, by looking at fixing instances where there is chronic underinsurance and ensuring we have the ability to trade on.”
Thomas Lillelund, CEO, Aspen Re, said he expected that losses from Harvey and Irma will impact pricing—certainly in the US and maybe elsewhere. “There remains great uncertainty but I would expect a reaction from the industry,” he said.
Flandro reiterated that he expected the losses to shore up the softening market after prices dipped more than anticipated in the June renewals, according to the company’s risk adjusted rate online.
Promoting talent
Masters turned the discussion to the importance of talent in the industry, asking the panellists whether the industry was doing enough to harness the abilities of the next generation of executives.
Krefta from Hiscox said the industry does not talk enough about talent. He said that the role of an underwriter had evolved greatly in the past 20 years from being a relatively passive taker of risks to having to understand analytics and technology while also marketing the business and working with the capital markets.
“So many different skillsets are being blended into the role,” he said. “This is something we need to take stock of and invest in the next generation. People talk about Millennials and how they are different but what is clear to me is the tremendous opportunity to harness their new skills.
“As we leverage insurtech and the world moves to start underwriting using artificial intelligence we will need the skill of this new generation to help interpret risk and price it in a completely different way.”
Hawkins added that he is constantly amazed by how savvy and aware this new generation is compared with 20 years ago and how new systems and processes present an opportunity for the industry to be more efficient and to prevent disasters in organisations.
“There has been a real upgrade in talent and that will benefit the industry,” he said.
Lillelund agreed that the industry with its varied skillsets can be very attractive as a career to the next generation but that attracting the best people from this new generation was paramount.
Masters moved the debate on to reserve releases. The panellists tended to agree that reserves remain cyclical in their nature but were split on if and when this could emerge as a true problem for reinsurers.
The discussion also touched on what levers reinsurers have at their disposal to manage the soft market and tough market conditions. The panellists suggested that M&A and cost -cutting exercises help but there were more fundamental ways they could improve things.
“For me those levers are just pushing cents around edges,” said Krefta. “The real opportunities are more around things such as the protection gap, human capital and technology. These things represent tremendous opportunity for the market.
“It is always difficult when horrendous things are going on with natural catastrophes but the opportunities to close the protection gap are very real and we can help people in the process, by ensuring they have flood insurance or cyber coverage. There are tremendous opportunities and we should be tackling these.”
More broadly discussing insurtech, the panel agreed that some innovations such as blockchain have the potential to help make the industry more efficient. They also noted that such change need not always be a revolution—more often tweaks to products could be equally effective in making a positive difference.
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