Hurricanes Harvey and Irma thrust the perennial global protection gap starkly into the limelight, alongside rising threats from cyber and accumulation risks during the annual global reinsurance mart gathering in Monte Carlo. Asia Insurance Review reports.
As Florida braced itself for Hurricane Irma to make landfall soon after Harvey, discussions inadvertently focused on the potential losses and subsequent impact to hit the global reinsurance industry as it converged on Monte Carlo for the 61st Rendez-vous de Septembre (RVS).
Industry players declined to estimate losses as yet, given that the US storm season was still in swing. But catastrophe modelling firm AIR Worldwide projected combined insured losses for Irma for the US and the Caribbean to be between US$32 billion and $50 billion, while it expected Harvey to cost insurers up to $75 billion.
Storms underscore stark protection gap
Amid reinsurance market growth prospects shared during the Rendez-vous, Munich Re board member Torsten Jeworrek called on the market to urgently reassess and close the global protection gap in light of Hurricane Harvey. Nat CAT losses, he noted, remain largely uninsured worldwide, even among highly-developed markets.
Separately, Aon Benfield’s 2017 Reinsurance Market Outlook report also noted that the US, despite being one of the most insured countries globally, had close to half of its economic losses from Nat CATs in 2016 that were uninsured. CEO Eric Andersen said that it is unfortunate that much of Harvey’s devastating tab will be picked up by the US government and taxpayers, while the industry is seeing an “over-capitalisation” and new investors actively seeking access to diversified insurance risk. “The frequency of severe weather-related losses is increasing and there needs to be a significant step-up in the efforts made to address the protection gap evident globally.”
Although exact losses from Harvey and the severe monsoon flooding in India are still unknown, Dr Jeworrek said “it is already clear that there is a considerable gap between economic losses suffered and the amount covered by insurance”. The industry thus needs to find innovative ways, in partnership with governments to access markets, he added.
In a similar vein, Swiss Re’s latest sigma report – “Insurance: adding value to development in emerging markets” – launched at the Rendez-vous, emphasised the need to use various approaches including microinsurance, public-private partnerships, innovation and technology, to better align risk transfer solutions with consumer and business needs. This can help overcome barriers to the development of the insurance sector in emerging markets. Countries’ insurance penetration rates alone, Swiss Re Chief Economist Kurt Karl said, was no guide to the development of its insurance mart. “It sheds no light on how many people have insurance, nor does it say anything about how insurance makes lives better.”
1/1 renewals expected to be stable
In light of recent loss events, market giants including Swiss Re said 1 January 2018 renewal rates are expected to stabilise, while Hannover Re chief executive Ulrich Wallin predicted pricing to flatten out and hold stable, given excess capacity and weak industry earnings.
On the other hand, SCOR Group Chairman and CEO Denis Kessler held a grimmer view that once the losses from Hurricanes Harvey and Irma are quantified, “the market will change” in that some firms will be badly affected or forced to exit the market. He added that all the major reinsurers including SCOR however, are likely to be at ease as they are well-diversified, following lessons learnt from Katrina and Wilma in 2005.
Time to shine
Nonetheless, the occurrence of Hurricane Harvey and the potential impact of Irma will present a “massive opportunity” for the reinsurance industry to shine, said outgoing Willis Re CEO John Cavanagh at the broker’s global reinsurance marketing briefing.
Likewise, JLT Re Executive Chairman Ross Howard noted that now, more than ever, is the time for the reinsurance industry – which has never been better capitalised – to prove its worth to its clients by responding to recent events. He added that it would take “a coalescence of events to really turn the market and balance sheet of the sector”.
The ILS market meanwhile, is slated to be tested by the storm season, but JLT Re Global CEO Mike Reynolds remained confident that the ILS market, having been integrated as part of the industry, will step up. “If we had any concern with their ability to respond, we would not advise our clients to build [ILS] into their reinsurance programmes.”
True extent of cyber risks requires state support
The increasing prevalence of cyber risks was another hot topic explored during the Rendez-vous. While coverage for cyber appears to be a potential growth area for most players, Swiss Re CEO Christian Mumenthaler urged caution, noting the tremendous aggregation risks that come with its insurability. Referencing recent cyber attacks, he said it [is becoming] clearer that significant damage can be inflicted on critical infrastructure such as the internet – that could even result in “another 9/11 event”.
While he recognised that the (re)insurers can play a big role in managing cyber exposure, the industry cannot carry the risk alone. Thus, a viable solution will require government-backed reinsurance mutuals similar to Nat CATs and terrorism covers. However, Swiss Re, he said, “remains very cautious” and will maintain a significantly underweight exposure to the business, given the lack of a “convincing solution to the issue beyond government support”.
Rising concern over connected risks
Meanwhile, Mr Suki Basi, Managing Director of Russell Group, also noted on the sidelines of the reinsurance gathering, the urgent need to address the issue of connected risks in today’s world.
Commercial organisations – along with their partners, suppliers and clients – are systemically exposed to cumulative and cascading financial, operational and reputational vulnerabilities. With the increasingly digital connectivity within and between organisations, a single negative event could wreak severe economic damages.
Initial key areas of concern, he added, include natural perils, credit, supply chain, cyber and political risks, of which the latter two have manifested in events such as the WannaCry ransomware attack, and closer to home, geopolitical tension in the South China Sea.
Elsewhere, Willis Re also reported on the growing concern among industry practitioners about “silent cyber” exposure – potential cyber-related losses stemming from silent coverage in insurance policies that are not specifically designed to cover cyber risks. An example would be a cyber attack on an industrial plant’s control system that causes an explosion, which could result in property damage or business interruption. A
| B3i launches reinsurance blockchain prototype
One of the highlights at this year’s RVS was the launch of the Blockchain Insurance Initiative (B3i)* consortium’s reinsurance blockchain prototype, after months of development. The fully functional beta-version of the platform, said to have the potential to radically simplify how the industry does business and could provide productivity gains of up to 30%, was presented to a full house at the Swiss Re pavilion.
It covers the core functionalities required to enable a distributed smart contract management system for Property CAT XL reinsurance contracts, and B3i is preparing for production in 2018. All parties involved, which means brokers, insurers and reinsurers alike will gain from the efficiency, said B3i’s Sylvain de Crom. This means they will benefit from lower administration costs and be able to offer more attractive rates and fees in future.
“After launching the initiative last year (in October), B3i members have been seeking to fulfil the huge potential of blockchain with a singular vision: To build an efficient world-wide industry platform for market participants to more easily cede, handle and trade risks,” said B3i in a statement.
“The platform uses state-of-the-art distributed ledger technology to enable secure, confidential and efficient transactions in a blockchain network. The short-term focus of the platform is on handling reinsurance contracts.”
The immediate next step is to launch a market testing programme for the prototype starting October 2017. All insurance industry stakeholders are welcome to join the existing B3i members in the testing (b3i.tech).
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| GIC Re takes point on Asian reinsurance growth
India’s General Insurance Corporation (GIC Re) led the pack in terms of growth among Asian reinsurers in the list of Top 50 world’s largest reinsurance groups in 2016, said international rating agency A.M. Best, in its global reinsurance review.
“Among the Asian companies on the list, GIC Re of India grew very strongly, owing to the country’s government-sponsored crop insurance programme, coupled with relatively weak solvency capital as its cedants,” the report said.
State-owned GIC Re posted an 87% growth in its gross premium to US$5.2 billion in FY17 compared to FY16, on the back of a big jump in the government-backed crop insurance scheme, Pradhan Mantri Fasal Bima Yojana. Net profit jumped by 10% rise for the financial year ended 31 March 2017. The reinsurer posted after-tax profit of INR31.27 billion (US$487 million) in FY17 as compared to INR28.48 billion posted in FY16.
However, the report also says that GIC Re is likely to grow at a slower pace over the short term. It says that growth in the company’s top-line may face strong hurdles, given that more foreign reinsurers have opened branches in India recently.
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