Insight and Intelligence on the European and International (Re)insurance Markets

20 OCTOBER 2019

SUNDAY

BADEN-BADEN Reinsurers brace for squeezed returns as retro costs set to bite uropean property catastrophe Reinsurance underwriters added that Etreaty reinsurers fear a second year Key points the trend seen in the US and Japan of of squeezed returns as they face being increasingly specific pricing, with rate caught between flat inwards pricing c European loss experience has been increases strongly tied to loss-affected and steepening retrocession costs at benign and globally 2019 does not regions, risks or individual clients, is the 1 January renewal. look to have been an above-average increasingly evident within Europe. Insurers on the continent have experienced cat year Even European cedants with some losses another relatively benign year for cat events. c Hagibis, Faxai and Dorian will put are likely to argue that they have paid Globally, despite creep on Typhoon Jebi some pressure on retro capital, enough in premiums in loss-free years to losses in the first half, as well as Hurricane driving up prices justify a flat renewal rate this year, sources Dorian and typhoons Faxai and Hagibis, c Increasing retro costs plus said. 2019 does not yet appear to be an above- anticipated flat European property Reinsurers, on the other hand, are arguing average cat loss year. cat treaty rates will squeeze for increases after a decade-long downward This 2019 loss record, coupled with a long reinsurers’ returns trend in European property cat treaty benign period for cat claims in Europe and c Some cedants are starting rates which has left pricing at levels many a continued abundance of capacity, means negotiations early in a bid to lock in consider unsustainable. that reinsurers have little expectation of low prices Underwriters have been warning for some securing anything better than a flat renewal years that pricing on European property at 1 January. losses this year, but none have been big treaty has been below technical adequacy. At the same time, however, those enough have a broad-based positive impact The run of large wind losses in Japan in same losses – following a period of on pricing. 2018 and now potentially 2019 is seen as a underperformance in the ILS market – look Storm Eberhard, which struck Germany cautionary tale about how reinsurers writing set to cause a contraction of retrocession in March, resulted in a $1.1bn insured technically under-priced business in good capital that will force reinsurers’ costs higher. loss according to an Aon estimate, while years find this ultimately catches up with Early reads on the European windstorm hailstorms and severe weather that hit them when loss activity returns. renewal from market sources suggest it will Munich and parts of Poland, Slovenia, Czech be stable and orderly, with little change Republic and Italy in June brought $722mn The case for rate increases to demand, supply, pricing or terms and in insured losses. Reinsurance sources pointed to global conditions. Sources said that where these and cat activity and their increasing cost other incidents did become reinsurance of capital to justify arguments for rate Loss activity events, they only touched the first layers increases in Europe. Europe was not entirely without notable of cedants’ protection. CONTINUED ON PAGE 04

03 Channel Syndicate 05  Cyber XoL demand grows 08 Interview: GC’s seeks RITC deal amid aggregation concerns Massimo Reina INSIDE 04  Allianz to add £500mn 06  Brexit uncertainties for 15  Profile: Axa XL’s UK reinsurance cover European reinsurers Bertrand Romagne

Turning Risk Into Success

Baden-Baden 2019 Day 1.indb 1 18/10/2019 16:41 RR_InsInsiderAD_BadenDallies_Sept19Partner279x215.inddBaden-Baden 2019 Day 1.indb 2 1 09/09/201918/10/2019 4:25 16:41 PM COMMENT

Reinsurance 2025: The squeezed middle

ewind to 2014. Cat reinsurance rates Arguably, it is insurance pricing for large, a global footprint, all-line expertise and Rwere in freefall, casualty ceding complex, specialty risk that overshot more major capacity. commissions were soaring. clearly on the downside than reinsurance. And these companies are clearly highly Reinsurance was becoming a single-digit The biggest carrier stories of the past 12 expansive, with Swiss Re (+30 percent), return game driven by structural changes months have been the remediation of AIG’s Hannover (+20 percent) and Scor (+12 around its capital base. book and the tactical and strategic efforts to percent), showing they had major appetite The likes of Zurich, AIG and Liberty were reconstruct Lloyd’s. to grow with even relatively limited upward progressively retaining more risk at the Questions about industry structure and rate momentum in Q2. expense of reinsurers as they looked to the reinsurance sector that felt urgent back The question then becomes two-fold. leverage their monster balance sheets. in 2014 may no longer be top of mind, but First, will we see the development of a new PartnerRe’s board decided to quietly put I think they remain highly pertinent. And generation of truly low-cost reinsurers that the business up for sale after judging that there is a question currently exercising the act as almost pure capacity providers? it would be too expensive to build or buy minds of managing agency CEOs that has Such companies would need to find ways an insurance business, which was mission interesting parallels for the reinsurance to satisfy regulators and ratings agencies critical for future success as a carrier. market. that they had sufficient oversight in place The Bermudian reinsurer’s judgement of With excessive expense a huge issue within (perhaps harder to achieve outside the its prospects was so bearish that it decided Lloyd’s, the Corporation has indicated as part Lloyd’s ecosystem), while convincing that a sale to Axis, which would value one of Blueprint One that it will look to create investors they could make a return and of the leading reinsurance franchises in the a greater distinction between leaders and create franchise value. world at less than book value, was a better followers. None of that is a mean feat, but it could outcome than an independent future. Leadership – which is likely to be perhaps be done with enough ingenuity. At this point the focus of the reinsurance officially accredited – will require product, And second, if they could establish world was directed towards model shift, as underwriting and servicing capabilities. themselves – or if some existing reinsurers scale was pursued through consolidation, But the following market will be given evolved in this direction – would the middle diversification was used to secure additional the freedom to operate as true capacity tier of reinsurers be able to successfully financial leverage, and fee income and providers, exempted from the need to compete against the full-service leaders and additional market presence was sought employ expensive staff to carry out work the ultra-low-cost followers? through the development of third-party that duplicates the efforts of the leader. One suspects that in such a scenario, the capital platforms. If the model works as intended, flexible middleweights would find the squeeze far Questions were asked about whether structures will be developed that allow from comfortable. the potential of the ILS industry and its capital to follow expertise, with significant appetite for even volatile risk at mid-single cost benefits accruing to the market. digit returns meant the days of writing cat Over the next five years, the Lloyd’s market reinsurance on your own balance sheet looks set to bifurcate dramatically as a result. might be over. Could the same thing happen within the Adam McNestrie, But since those dark days, the industry’s reinsurance market? Editor-in-Chief, attention has moved on, and the real Arguably, the leaders have already The Insurance Insider problems have emerged elsewhere. established themselves, with a push towards [email protected] Scor’s Channel Syndicate seeks RITC transaction

cor-owned Lloyd’s business Channel Arch-backed legacy carrier Premia has “We confirm that we are investigating SSyndicate 2015 has approached the provided new competition in the RITC space a reinsurance to close for our 2017 and legacy market as it looks to secure a and will be keen to strike its first third-party prior years of account. This will enable us reinsurance-to-close (RITC) transaction, deal, having recently acquired the Standard to redeploy capital into our focus classes, The Insurance Insider understands. Syndicate and Charles Taylor’s managing namely cyber, political and credit risk, It is understood that Channel is using a agency to provide it with a Lloyd’s platform. environmental impairment liability, fine art broker to advise on the deal, which would RiverStone and Randall & Quilter are also and specialist areas within property.” address the liabilities for the 2017 and prior active, while Berkshire Hathaway has been Channel Syndicate 2015 has struggled years of account. largely dormant for years. with profitability since its inception in The RITC market at Lloyd’s is highly Stuart McMurdo, CEO of Scor’s specialty 2011, as it attempted to build critical concentrated and there are only a handful of insurance operations for Europe, Middle mass in a poor pricing environment. It has players which would be in a position to take East and Africa, confirmed the RITC process recently undertaken a number of remedial on the transaction. They include Enstar’s RITC to this publication in a statement and said: measures to address underperformance, syndicate Shelbourne, which dominates the “Our strategy centres around delivering including exiting general and professional market and is believed to have more than enhanced, consistent and sustainable profit liability, accident and health, hull and cargo £3bn ($3.3bn) of reserves. in specialty insurance lines. insurance last year.

DAY 1: SUNDAY 03

Baden-Baden 2019 Day 1.indb 3 18/10/2019 16:41 NEWS NEWS

Allianz to add £500mn UK pillar as it digests acquisitions

llianz will purchase a new UK-specific is understood to have around £300mn of The US-specific tower has historically Aprotection to sit underneath its vertical limit. renewed at 1 May, but is set to move to SuperCat and MegaCat treaties at Reinsurers assume that the exposures 1 January. 1 January as it begins the process of from the LV portfolio will be rolled into the Allianz purchases its cat covers for all integrating its two new UK acquisitions, UK-specific protections over the next 12-15 group companies via a central vehicle – The Insurance Insider understands. months. Allianz Re – which is run by Amer Ahmed. Sources told this publication that Allianz Sources said that Allianz had already At the end of May, Allianz announced the has indicated to reinsurers that it will buy submitted data to its panel of reinsurers, as twin UK acquisitions. a roughly £500mn ($628mn) cover for its it looks to follow the kind of early timetable It agreed to buy out the 51 percent of LV’s existing UK exposures and the Legal & it has typically used. GI business that it did not already own for General portfolio. Allianz is one of the biggest buyers of cat £578mn. It has decided to postpone a bigger reinsurance in the market and buys around It also said it had struck a deal to acquire restructure, initially rumoured at Monte EUR2bn ($2.2bn) of limit across the SuperCat Legal & General's GI business for £242mn. Carlo, which would have seen a single and MegaCat treaties, with an additional The combined deals will make Allianz reinsurance purchase to cover all UK global umbrella layer. Guy Carpenter and the second-biggest GI insurer, with pro exposures, including the recently acquired Willis Re broker Allianz's cat covers. forma GWP of £4.0bn and a market share LV portfolio. The company has maintained a stable of 9 percent. Sources said that Allianz will instead reinsurance panel over the years, and – like Following the close of the deals, Allianz continue with the existing LV cat treaty at its many Europe-focused portfolios – has been will have 12 million customers in the UK. scheduled 1 December renewal date, which highly profitable for reinsurers. Allianz declined to comment.

CONTINUED FROM PAGE 01 capital-efficient European property market Property cat pricingcat pricing trends trends as a diversification play. Reinsurers with global exposure will have This, sources said, means some carriers been hit by Hurricane Dorian, which RMS 600 France are happy to continue to grow or maintain estimated would cause insured losses of 500 Germany strong presences in the European market, $4bn-$8bn; Typhoon Faxai, believed to be 400 despite soft pricing, and cedants are able a $5bn-$7bn event; and Typhoon Hagibis, to take advantage of that. The cornerstone 300 which the most bearish reinsurers fear could capacity in the market provided by large result in losses on a similar scale to last 200 continental players Swiss Re, Munich Re and year’s $15bn Typhoon Jebi. 100 Hannover Re also adds to the downward Jebi is also responsible for billions of 0 pressure on rates. dollars of losses that have come through It is yet to be seen how much influence 199019921994199619982000200220042006200820102012201420162018 this year, as claims poured in during the first Source: Willis Re a contraction in retro capacity and the half. continuing abundance of capacity will wield A European underwriting source said these investors wary of putting money in after over pricing negotiations at 1 January. But in losses all pointed towards a disappointing two years of weak performance, mistrust of private reinsurers are not hopeful that they set of Q3 results for reinsurers, which models and concerns over climate change. will gain ground. they could use to strengthen their hand At the same time, there are fears that An indication of where power lies between with European cedants during pricing if Hagibis is a significant event in the reinsurers and cedants is an emerging negotiations. $10bn-$15bn range, this will spark a lock-up pattern of earlier-than-usual manoeuvres These incidents do not make 2019 a of capital as buyers freeze collateral while from primary carriers. worse-than-average cat year, even with the they wait for a clear picture of the typhoon Sources said some cedants had started caveat that the Japanese winter storm and damage to emerge. These factors point negotiations and sent submissions earlier North American wildfire seasons are still to significant increases in retro rates of in the quarter than would be expected. to come. Year to date, catastrophe activity between 10 percent and 25 percent. This may reflect either a hope to get ahead is still likely below average after a first half of any further loss activity in the year, or in which losses were only $15bn versus a The case for stasis an attempt to secure flat terms before a 10-year average of $31bn. The main barrier – alongside benign potential retro lock-up begins to make its Reinsurers can argue, however, that their loss experience – to increasing property effects felt on first-tier reinsurance pricing. cost of capital is rising owing to soaring cat treaty rates in Europe remains an One source reported that a Swiss cedant retro rates, squeezing returns further if they abundance of capacity. Reinsurers with had achieved a risk-adjusted reduction on cannot achieve rate rises. exposure to North American hurricane their renewed contract by agreeing a deal at The ILS market is in a fragile state, with and wildfire risk have long used the highly this early stage.

04 DAY 1: SUNDAY

Baden-Baden 2019 Day 1.indb 4 18/10/2019 16:41 NEWS NEWS

Cyber XoL demand grows as aggregation concerns mount

yber insurers are showing increasing reinsurance market conditions as stable. silent cyber exposures. Cdemand for aggregate excess of loss The primary market’s reliance on cyber A number of moves have been made to (XoL) reinsurance protection as board- reinsurance is fairly substantial, with Swiss try to tackle this silent challenge. AIG and level concerns around aggregation risk Re estimating that cyber reinsurers take Allianz have rolled out group-wide initiatives heighten. approximately 40 percent of all insured to clarify wordings for cyber exposures on Participants in the standalone cyber cyber risk globally, equivalent to around all P&C polices, while Lloyd’s has mandated reinsurance market told The Insurance Insider $2bn of premium. managing agents to do the same. that while quota share structures are still Taking the Capital One loss as an example, Swiss Re and broker Capsicum Re have bought most, the past year has seen rising if the full $400mn tower (pictured) was collaborated to launch a cyber reinsurance demand for a solution which can help exhausted, the reinsurance market would solution that provides cover for both protect net retentions. absorb a loss of around $160mn. However, affirmative and silent cyber risks. “Applying reinsurance structures to many in the primary market believe the loss “We believe the main risks which would insurers’ market shares, you would find that will only reach around halfway up the tower. aggregate are first-party risks, like business 80 percent of the market is protected by Sources speaking to this publication also interruption and data restoration, and that is some sort of proportional arrangement,” said agreed that the 40 percent reinsurance definitely something that we are monitoring Anthony Cordonnier, head of cyber product dependency figure felt about right. and managing very carefully,” said Bundt. “It management at Swiss Re. “We believe that capacity is not is worth noting that not everything in cyber “About half of that number is protected constrained at the moment, there seems to aggregates in the same way.” by a mixture of proportional and non- be enough reinsurance capacity in general proportional covers, generally a combination in the market and we believe reinsurance of quota share and aggregate stop loss.” capacity will likely grow with the primary CapitalCapital One One 2019/2020 2019/2020 However, demand is now slowly increasing market,” said Maya Bundt, head of cyber and cyber placementcyber placement for aggregate XoL protection. Additionally, digital solutions for Swiss Re. “I don’t see it was also suggested by sources that that there will be a shortage of reinsurance insurers with subsidiaries in more than one capacity apart for some very large, difficult $55mn xs $345mn – Shared layers geography are seeking to secure cyber risks.” reinsurance protection at group level, and However, if cyber insurers start to look are often now looking for solutions which for substantially more protection some $45mn xs $300mn – Marsh Echo Facility can address both affirmative and non- underwriters believe conditions should start affirmative – or silent – cyber exposures. to harden. Despite more frequent and high-profile “There is ample capacity but there is not $50mn xs $250mn – Marsh Echo Facility losses in recent months, including the a huge volume on the sidelines waiting Capital One data breach, cyber insurance to come in and flood the market,” one $50mn xs $200mn – books generally run profitably and cedants underwriter said. Aspen Bermuda $5mn, Beazley $10mn, are keen to retain more of that profitable Writers of cyber reinsurance include Validus $10mn, Ironshore $10mn, RLI $15mn premium, although to date cessions have Munich Re, Swiss Re and Hannover Re, $50mn xs $150mn – not come down significantly. as well as carriers such as RenaissanceRe, WR Berkley $5mn, Sompo Bermuda $5mn, Axa XL Bermuda $10mn, Markel US $10mn, Sources said that a 50 percent cession rate TransRe and PartnerRe. MS Amlin-backed AIG Bermuda $10mn, AWAC Bermuda $10mn on a standalone cyber quota share was not MGA Envelop also serves the market, as $10mn xs $140mn – Tokio Marine HCC unusual but this varied by cedant. does Radius, which operates on Fidelis’ MGA “Cedants are still keeping their quota platform Pinewalk. $35mn xs $105mn – Ironshore $5mn, WR Berkley $5mn, shares in place but they want more of that Allianz $10mn, Axa XL US $15mn sideways protection,” said one source. “Over Cross collaboration time I would expect cessions to decrease.” Bundt said risk capacity was not the only $15mn xs $90mn – CNA Attachment points for aggregate stop- thing the reinsurance market delivers to the $15mn xs $75mn – Nationwide loss covers typically hover around the 100 primary market. percent loss ratio mark, but those reinsurers “There is also a strong knowledge $15mn xs $60mn – Berkshire Hathaway which rely more heavily on retro cover can exchange,” she said. “There is still so much $15mn xs $45mn – Sompo offer attachment points as low as 80 percent to research and understand in the cyber or 90 percent, sources said. world that it makes for strong collaboration $15mn xs $30mn – Chubb between primary insurers, reinsurers and $15mn xs $15mn – Axis Reinsurance reliance brokers.” Primary $15mn – AIG The cyber insurance market continues to Just as it concerns the primary market, expand and demand for reinsurance is risk aggregation is also a major challenge Source: The Insurance Insider increasing, and sources described cyber for cyber reinsurers, particularly around

DAY 1: SUNDAY 05

Baden-Baden 2019 Day 1.indb 5 18/10/2019 16:41   NEWS 

Late Brexit agreement could pave way for reinsurance equivalence

he UK (re)insurance industry is operate on a level playing field with their EU equivalence status. Most specialist insurers Twaiting to see whether it has counterparts. have access to Swiss, Bermuda, Japanese sidestepped a potentially damaging loss Speaking before the Johnson-Barnier paper – all the big ones have choice of paper of equivalence with the EU after Prime deal, Shearman & Sterling partner Thomas and even smaller ones have something,” he Minister Boris Johnson and EU negotiator Donegan assigned a “close to 100 percent” noted. Michel Barnier’s eleventh-hour Brexit probability of the UK gaining equivalence if Switzerland and Bermuda have full deal on Thursday. a deal replicated the structure of May’s deal, equivalence, while Japan has temporary At the time of writing, it was far from with a transition period. With a hard Brexit, equivalence. A clutch of other countries have clear that the agreement would gain though, it would – at least initially – “look provisional equivalence, including the US, parliamentary approval on both sides of the like a zero”. whose covered agreement with the EU of future border. The main problem in that case would March 2018 includes mutual recognition of However, if the pact and accompanying be “for UK insurers with EU customers, regulatory frameworks and will ultimately political declaration pass muster and mirror and without an international reinsurance remove cross-border local presence and work done under former UK PM Theresa May, network, who wish to insure EU customers collateral requirements for reinsurers. a built-in assessment of whether UK rules after Brexit from a new EU entity and The UK and the US signed their own pact are equivalent to the EU’s for reinsurance reinsure back to the UK”, he added. “In those mirroring that arrangement last December, purposes would follow. cases, it will be very difficult to do new putting Britain on par with the EU27 in Article 172 of Solvency II provides for the business.” terms of the (re)insurance rules governing provision of third-country reinsurance within “The work-around is to reinsure into an transactions with the US. the bloc by equivalent jurisdictions. As the equivalent jurisdiction such as Bermuda. In January the UK government forged a UK has been one of the most enthusiastic That may involve not just the sunk business similar bi-lateral pact for (re)insurance with adopters of Solvency II some observers had cost of a new EU subsidiary but another Switzerland. originally assumed the country would gain cost of establishing in an ‘equivalent’ third EU reinsurers transacting in the UK are equivalence on exiting the EU almost as a jurisdiction too,” Donegan said. well-catered for through the temporary matter of course. Many UK carriers’ Brexit EU hubs have permissions regime, which runs until 2022 However, it emerged in September last been designed on the basis that the bulk provided carriers have applied for the year that Polish and German regulators of business will get reinsured back to leeway. were already taking a hard line on domestic Britain, though the European Insurance For their counterparts based in the UK cedants transacting with Lloyd’s, sending and Occupational Pensions Authority has – and for the wider (re)insurance industry the Corporation scrambling to provide the recommended a maximum cession limit of – equivalence only goes so far, since it full gamut of reinsurance from its Brussels 90 percent. doesn’t provide for direct insurance or platform and raising alarm bells for the wider But even in a hard Brexit scenario, intermediation. What’s more, the EU is able (re)insurance industry. a number of companies have work- to rescind the equivalence designation at It’s now clear that in the event of a hard arounds via platforms based in equivalent short order. Brexit with no transition period or baked-in jurisdictions. For that reason, groups such as the London equivalence assessment, UK-based carriers RSM UK’s financial services co-head Peter Market Group (LMG) and CityUK have called with no alternative reinsurance platforms Allen said: “Carriers can put business through for “enhanced equivalence” after Brexit. in equivalent jurisdictions will be unable to third parties, or run it through places with an Layered on top of the current uncertainty is the extent to which a future UK government will seek to make the most of Brexit Lloyd’s and reinsurance freedoms by loosening rules and moving the domestic regulatory framework further away Lloyd’s is among the many entities and the Brussels business has deployed from Solvency II. lobbying hard for enhanced work-arounds to enable it to write The LMG, for one, is keen to keep equivalence, given that local rules in proportional reinsurance business. divergence to a minimum. However, Germany, Poland and the Netherlands Chief among the requirements for quota- the notion of the UK faithfully tracking may prevent reinsurance being written share underwriting is the creation by amendments to Solvency II – which is directly into the UK in the case of a managing agents of an “in country” service currently under review – looks politically hard Brexit. company. However, it is understood tricky. The Corporation equipped its Brussels that the appetite for proportional treaty One top executive at a major (re)insurance platform to write facultative reinsurance business through the platform is mixed. group warned of the threat the country may and non-proportional excess-of-loss In the first half of this year, Lloyd’s lose equivalence down the line. reinsurance across the entire European Brussels wrote about EUR1.07bn ($1.19bn) “Carriers without any reinsurance operation Economic Area as of 1 January this year of gross premiums. in any other equivalent jurisdiction might struggle,” he said.

06 DAY 1: SUNDAY

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ODYS03-3446Baden-Baden 2019 Insurance Day 1.indb Insider 7Baden_FRA.indd 1 25/09/201918/10/2019 2:27 16:41 PM INTERVIEW

GC’s Reina on the growing role of reinsurance

The CEO of Continental Europe and Mena gives his view on 1.1 dynamics, the evolving broker space and how client demands are changing

hisper it, but when Massimo Reina relationship from buyers,” he says. In recent years, the status Wwas first contemplating his career “Our role is now much more far-reaching, path, reinsurance wasn’t his first choice. encompassing not only the ability to “of reinsurance has risen In fact, he really wanted to go into the provide the most effective risk-transfer considerably in the eyes banking sector. product at the best price through the most of the C-suite. Its value to “It was a very attractive marketplace efficient market channel, but also acting at that time,” he says. “But I am of course as strategic advisers to our clients in all the buyer is now viewed delighted with the choice I eventually matters relating to risk and capital.” in a much broader context made!” Growing demands and expectations from than simply a risk transfer Reina entered the (re)insurance market clients mean that the barriers to entry in more than 30 years ago, and has never the reinsurance broking space can be quite mechanism looked back. He has spent the last 11 years high, Reina explained. ” at Guy Carpenter, where he is now CEO of While the reinsurance broking sector Continental Europe and Mena, a role he has undergone a period of consolidation took on in 2014. – most notably with Marsh & McLennan’s When The Insurance Insider interviews acquisition of JLT Group – a handful of start- the executive, he explains how much the ups have emerged. industry has changed since his early days of “Expanding demand from clients means placing risks in the Lloyd’s market. that significant investment is required “The reinsurance sector has always been into technology, analytics and, of course, an incredibly dynamic and stimulating human capital,” Reina says. “There is also environment to work in,” he says. the challenge of achieving the necessary “In recent years, the status of reinsurance proximity to clients and having that has risen considerably in the eyes of the working knowledge of local market C-suite. Its value to the buyer is now viewed dynamics. Building an effective distribution in a much broader context than simply a network and establishing that on-the- risk transfer mechanism. ground presence in your key markets is a “Rather, it is seen as a strategic tool that significant undertaking.” enables carriers to better protect their When Reina isn’t working you can balance sheet against the financial fallout generally find him at the top of a mountain of large-scale events, reduce potential P&L or on a boat in the middle of the ocean. volatility and provide an effective means of He loves to be active and escape to the managing capital in line with risk appetite.” great outdoors, though, “unfortunately, of Rated A/Excellent by A.M. Best No two buyers are ever the same, but course, you never get as much time to enjoy to a large extent, client demands haven’t these opportunities as you would like!” changed, he explains. Of course, he tries to spend as much time For the most part, clients are keen as he can back in Italy, where he likes to Lumen Re Ltd (Bermuda) is sponsored by LGT ILS Partners to maintain a diversified panel of core take his children on holiday. reinsurers that are financially robust, can “They were all born in Milan, but they [email protected] demonstrate a thorough understanding of have spent most of their lives in the UK,” he their business, and can offer consistency of explains. “I want to make sure they maintain supply over time – although cost efficiency, their Italian identity, so regular trips are a demand for broader coverage and access to must.” alternative capital can influence the panel composition. 1 January dynamics The conversation turns to the Broker evolution Baden-Baden reinsurance But the role of brokers has had to evolve conference and the upcoming LGT ILS Partners just as the risks their clients face have done. 1 January European [email protected] “We are seeing a more sophisticated and considered approach to the broker CONTINUED ON PAGE 10

08 DAY 1: SUNDAY

Baden-Baden 2019 Day 1.indb 8 18/10/2019 16:41 Lumen Re_ad.indd 1 29/08/2018 15:17 INTERVIEW

Rated A/Excellent by A.M. Best

Lumen Re Ltd (Bermuda) is sponsored by LGT ILS Partners [email protected]

LGT ILS Partners [email protected]

LumenBaden-Baden Re_ad.indd 2019 Day 1 1.indb 9 29/08/201818/10/2019 15:1716:41 INTERVIEW

CONTINUED FROM PAGE 08 “However, Europe is a very diverse region, successful public-private initiatives.” with each country having its own specific Guy Carpenter has worked closely in the property catastrophe renewals. characteristics, legal systems and market UK market on two major initiatives, Pool Reina says that from a global perspective, dynamics. This diversity means there are Re and Flood Re, which are respectively there is no doubt that carriers reaped the still profitable opportunities for reinsurers providing critical cover for terrorism benefits of robust reinsurance protection in specific areas of the casualty market.” and flood-related risks as public-private during the devastating losses seen in 2017 partnerships. and 2018, helping to limit earnings volatility Other similar initiatives include the despite considerable financial impact. Europe is a very diverse Insurance Pool against Natural Disasters “The knock-on effect of this has been “region, with each country of Romania and the Turkish Catastrophe an uptick in the amount of premium having its own specific Insurance Pool. being ceded to the market, as companies “More needs to be done to encourage are seeking to further capitalise on the characteristics, legal systems the development of such schemes and stabilising quality that reinsurance can and market dynamics. This Guy Carpenter is committed to supporting provide during times of volatility,” he diversity means there are still greater interaction between the public and continues. profitable opportunities for private sectors,” Reina says. The executive believes there are multiple factors combining at present to put pressure reinsurers in specific areas of on rates, and the market will have to see the casualty market Quick-fire Q&A how that pressure plays out during the ” What’s been your biggest 1 January renewals. achievement personally, or your At the same time, the market is also Closing the gap proudest moment? experiencing a number of structural Close to Reina’s heart is the role the There have been a number of stand- changes which may have a knock-on effect reinsurance sector can play in society and out moments during my career, but on buying dynamics. building more resilient economies, and he it is on the personal front that I have “One of the common threads during my explains there is always more than can be experienced some of my proudest discussions with reinsurers at Monte Carlo done in this regard. moments. Almost all of these have was a desire to grow their European book of Despite being a largely developed, involved my family and in particular business. So, when you combine all of these Western economy Europe still has a large key events and stages in the lives of components, I think it will make for a very protection gap, particularly around flood my children. interesting renewals period.” and earthquake risk. Property catastrophe business can often According to Swiss Re Sigma figures, What is your favourite city and why? steal the limelight in the reinsurance world in 2018 Europe as a continent suffered I love many cities around the world but Reina warns that at the moment, the $20.7bn in economic losses, of which just for different reasons, but if you ask me casualty sector is a greater cause for concern $7.7bn were insured. where I would live, outside of London among reinsurers than the property sector. “We are making some progress towards and Milan, I would say Madrid. I love An increasingly litigious environment in closing the gap, but there is still a the people, the food and the climate North America is driving up loss costs for significant amount of work to be done,” says there – once you have these three the casualty market, but even in Europe Reina. elements then in my view you have there are profitability pressures on casualty “This is a long-term project and one of the perfect location. insurers. the key challenges to overcome is to find Which lesson has been the hardest “In Europe, the prolonged soft market has better ways of aligning the interests of the to learn? reduced rates to a level which may not be public and private sectors. However, we The hardest lesson that I have had to sustainable,” Reina says. are increasingly seeing the emergence of learn, and one which everyone must learn, is that there is always another lesson to learn. Europe:Europe: n aturalnatural catastrophe catastrophe protection protection gap 2009‒ 2018gap ($bn)2009–2018 Where would you like to see the 50 reinsurance industry by the time you retire? Uninsured losses 40 I would like to see a greater Insured losses recognition of the critical role that 30 insurance and reinsurance plays in an

$bn increasingly complex and exposed 20 world. The industry fulfils a central function at the societal level, not only 10 through enabling recovery in the aftermath of a major event, but also 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 through providing the security to Source: Si e titute keep moving forward.

10 DAY 1: SUNDAY

Baden-Baden 2019 Day 1.indb 10 18/10/2019 16:41 Baden-Baden 2019 Day 1.indb 11 18/10/2019 16:41 Mind over risk

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InsiderBaden-Baden 0919 option 2019 2.indd Day 1.indb 1 12 02/09/201918/10/2019 11:41:50 16:41 CAT BONDS

Cat bond market to rebound in 2020

he cat bond market is expected to “For 2020 we think it will go back to across two classes of its Ursa Re 2017-1 Trebound in 2020 following a notably relatively more cat bond issuance but that bond rolling off risk. quiet 2019, market participants told will take a while to happen – it took a while Second up is Galilei Re 2016, ceded by sister publication Trading Risk. to move the other way.” XL Insurance, where the firm’s subsequent The bulk of the deals set to mature in the takeover by Axa and departure of the first half of next year are US transactions, Diversity former XL retro buying team for Convex though there are a handful of European Analysis by Trading Risk shows that 22 raise questions over how the (re)insurer will deals too. percent, or $7.1bn, of current cat bond approach the ILS market in future. Among these is the $305mn Benu Capital coverage is due to mature in the first half of 2015-1 transaction from Axa Global Life 2020. However, a quarter of the 28 bonds Pricing and low issuance which covers French as well as US and tracked have been impacted as a partial The stream of issuance has been notably Japanese mortality. There is also the or full loss, with loss-free renewal volumes quiet, with sources blaming the lack of $190mn Queen Street XII Re transaction dropping back to $6.1bn. deals on pricing disparities between the cat from Munich Re, which covers hurricane There is a notable weighting towards the bond market and the traditional market, as and Europe windstorm. first six months for next year’s renewals, well as a reaction to capacity shortages. At the time of writing, the EUR100mn with three-quarters of the year’s maturities Several cat bonds have struggled to reach ($110.2mn) Hexagon II transaction from falling due before June. Total maturities for their target capacity this year, while pricing Covea Group was the only transaction with full-year 2020 only rise to $9.1bn. has been pushed to the higher end of a European focus to be issued in the second The maturing bonds represent a diverse forecasts. half of the year. set of perils in the half year, such as Overall, cat bond volumes for the second Cat bond issuance dropped by 57 percent coverage for US health and against extreme quarter fell 60 percent to $1.8bn due to in the first half of 2019 to $3.5bn, as rising mortality events in the US, France and both the low number of issuances and rates and tight capacity led to less activity Japan, plus a Latin American quake bond. fewer deals being upsized. in the Q2 run-up to hurricane season. As would be expected, US wind risks Pricing in the second quarter of 2019 Despite the low issuance the market is represent a high proportion, at 18 of the 28 was significantly harder than in 2018, with expected to pick up in 2020, due to the maturing bonds, including multi-peril deals, spreads increasing by an average of 0.1 sheer volume of cat bonds expected to with a particular focus on Florida. percent from median targets, compared mature in 2019 and 2020. Up to $3.1bn of However, three bonds supply reinsurance with falling by an average of 7.3 percent cat bonds are expected to mature in the for risks in Japan – two of which address last year. second half of this year. typhoons. As Typhoon Jebi creep continues The overall level, however, reflected a Brokers say upcoming renewals could help and with concerns still live about Typhoon mixed bag of results, with some Florida pick up the pace. Faxai, and calculations beginning on the deals pricing at the top of or above targets Cory Anger, GC Securities head of ILS impact of Typhoon Hagibis, particular and the retro deals concluded toward origination, said the large volumes of cat attention will be paid to renewals in this the end of the quarter coming in more bonds due to mature in early 2020 could space. competitively. be a major catalyst in shifting the ILS rate But with no new Japanese deals brought In contrast, Floridian cedants were forced equilibrium. to the cat bond market in 2019, the regional to pay above their initial pricing ranges. Meanwhile, Willis Re’s head of ILS Bill diversity will likely be greeted by investors. Floridian insurer Safepoint, which Dubinsky told Trading Risk that the low Eyes will be fixed on the largest maturities. claimed on its Manatee Re 2016-1 cat bond issuance was due to price fluctuation in the This group is led by the California following Hurricane Irma, ended up paying early part of the year. Earthquake Authority which has $925mn rates in line with those it paid in 2016.

Non-US cat bonds maturing in H1 2020 Year Transaction (full name by Sponsor / ceding insurer Final size ($mn) Peril and territory Scheduled maturity/ Final spread (bps) tranche) redemption date 2016 Vitality Re VII 2016 A;B Aetna Life Insurance Company 200 US health 07 Jan 20 215; 265 2015 Benu Capital 2015-1 A;B Axa Global Life 305 US/France/Japan extreme 08 Jan 20 255; 335 mortality 2014 Nakama Re 2014-2 2 Zenkyoren 200 Japan earthquake 16 Jan 20 287.5 2018 IBRD Capital At Risk 118 A;B Fonden 260 Mexico earthquake 14 Feb 20 250; 825 2016 Akibare Re 2016-1 Mitsui Sumitomo Insurance 200 Japan typhoon 07 Apr 20 250 2016 Aozora Re 2016-1 Sompo Japan Nipponkoa 220 Japan typhoon 07 Apr 20 220 2016 Queen Street XII Re Munich Re 190 US hurricane and Europe 08 Apr 20 525 windstorm Source: Trading Risk

DAY 1: SUNDAY 13

Baden-Baden 2019 Day 1.indb 13 18/10/2019 16:41 Baden-Baden 2019 Day 1.indb 14 18/10/2019 16:42 INTERVIEW

Building bridges Axa XL’s Bertrand Romagne discusses changing cedant demands, this year’s unique reinsurance pricing challenge and bridging the protection gap

icture this: the scene is Venice. industry make after Monte Carlo happen to haven’t had any losses for a long time. But POr, more specifically, one of the be incorrect. We all spend some time talking that’s the (re)insurance business. Clearly in 400 bridges that connect the beautiful about it and collecting our thoughts on how markets where we’ve experienced losses city, defining its uniqueness. Bertrand the market might move but these views this year, like Germany and Italy, prices will Romagne is a civil engineer working on usually contrast with what really happens,” go up. Others, we’ll see. We’re still a reactive one of the most famous bridges, the he says. market more than anything else.” Ponte di Rialto, having fallen in love with Optimism versus reality? “Yes,” he chuckles, At the time of going to press, third- the city at the age of 18 while studying. “There’s perhaps a bit too much optimism.” quarter disclosures were on the horizon In a parallel universe, maybe. If he wasn’t But he says the industry is at the bottom and Romagne says these will dictate some in reinsurance this might have been the and there is no bandwidth to go down any of the rate activity at renewal. “I’m not sure career path Romagne would have chosen. further. “I don’t think anyone has written it’s going to be a good year for reinsurance But today, Romagne is chief executive business in the past few years where they’ve in general, but we have to see how it goes,” for Europe and CUO for P&C at Axa XL been 100 percent happy about it. We’ve he says. Reinsurance, and while it’s not the role he seen years of rates decreasing so no one is dreamt about as a teenager, there’s no place going to be happy about that,” he continues. CONTINUED ON PAGE 17 he’d rather be. “We’re clearly not where we want to be This year marks his 27th year in the right now, but I do expect there to be industry and “what a time it has been”, some recovery. Is it going to be a massive he says. Like everyone else, he “tripped” increase? I don’t know – the year isn’t over into the sector but has no regrets. “It’s funny looking back on what you think you We’re seeing things in would do as a career and where you are “ now. A civil engineer in Venice.” Perhaps a this market that we’ve retirement plan? “Oh, there’s a lot that needs never seen before, so it to be done before I retire,” he says. is a very interesting time Speaking to The Insurance Insider ahead of this year’s Baden-Baden reinsurance to be in reinsurance conference, it is clear his belief in the ” industry’s potential to make a difference is yet and the hurricane season in the US driving his commitment to the market. is far from being over and we could have Indeed, in his 27 years, he’s seen the any sort of loss before the end of the year. industry go through many different cycles, We live in a dangerous world where things and witnessed a variety of trends which happen. We can’t forget that.” have contributed to carving out where it finds itself today. “But something is different Pricing influence now,” he says. “We’re seeing things in this There’s no doubt about it, the market market that we’ve never seen before, so it is needs to see better pricing trends. “We’ve a very interesting time to be in reinsurance.” been under a lot of pressure for many Talking specifically about Europe, years now, but the thing people Romagne flags the recent cat losses in the need to remember is that north and south of Germany and also in it’s easier for markets to Italy. “While these are not too big, they’re have increased terms not inconsequential,” he says, bringing to when they’ve just had light the systemic impact of these losses. losses,” Romagne “It’s not a secret,” he says, “We all know there says, citing the is much less margin in this business than Japanese renewals there used to be and by having smaller, but as an example of regular losses, those losses are affecting [the this. industry’s] earnings. So, that’s something “It’s a bit that we will have to address when we think difficult to about pricing,” he continues. explain to a Romagne is hesitant to make assumptions client that the about where pricing will be at the 1 January price needs to renewals. “Most of the predictions we as an go up if they

DAY 1: SUNDAY 15

Baden-Baden 2019 Day 1.indb 15 18/10/2019 16:42 INTERVIEW

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Baden-Baden 2019 Day 1.indb 16 18/10/2019 16:42 INTERVIEW

CONTINUED FROM PAGE 15 they can generate enough commission to the industry, climate change is on his mind. make this quota share acceptable.” “This is an issue because it will probably Further compounding the current state bring some disturbance and we’ll have to of affairs for the reinsurance market is Bigger and better face it.” activity elsewhere in the industry. “The price At Axa XL, there is a lot to be energised increases we’re seeing in insurance and about. Not only did the 2018 acquisition Bridging the protection gap also in the retrocession market are setting of XL Group stamp XL Catlin’s legacy When he’s not building bridges in the EMPOWERING a new precedent,” says Romagne, while reinsurance business with an AA rating, it reinsurance industry, Romagne spends as acknowledging the necessity of these rate also gave the existing team access to skills, much time with his family as possible. “I am rises, especially in the insurance arena. insights and new coverage opportunities it travelling almost half of my time, so this OUR CLIENTS “The price of retrocession is going up, hadn’t previously been able to grasp. is very important to me,” he says. “Also, it’s which is interesting because in the past Examples which are complementary to important to be around friends outside of when the market was getting harder, it the reinsurance operation which Romagne the industry. Reinsurance is a small world was usually the retrocession market that is “very excited” about include the insights and the people you know do the same job, would raise rates, then reinsurance, then derived from Axa’s liability management they travel the same way as you are, so insurance; whereas now, you’re seeing and climate teams to help develop new sometimes we can forget the real world is insurance and retro having rate increases reinsurance business opportunities. very different.” and reinsurance is not really moving fast Furthermore, Romagne has no intention enough and we’ve not seen that before. We talk a lot about the of winding down. “There’s too much I want Honestly, it’s a bit of a mystery,” he says. “ to do in this industry, but when I think However, while pricing remains the cause protection gap, but there about what the future holds, I hope we will of some frustration for reinsurers, appetite are still plenty of people continue to provide a bit more support,” he for reinsurance among Axa XL clients is in this world who have no says. showing no signs of dissipating. Driven in coverage, no protection. “We talk a lot about the protection gap, part by solvency requirements and more but there are still plenty of people in this recently an increase in demand to protect I hope reinsurance will world who have no coverage, no protection. earnings, buyers continue to turn to the continue to provide a service I hope reinsurance will continue to provide a reinsurance market for solutions. which will make the world service which will make the world better.” “What we’ve seen in the past year is an He adds: “I’m not ready to retire, but I hope increase in demand regarding earnings better in the next 10-15 years we can say the gap protection,” he explains. “For many years, ” has reduced significantly. We’re still too far clients were more focused on protecting “There are more,” he says. “But these are away from providing protection to the level their solvency ratio, now they’re also the ones that come to mind in the first the world needs. It’s not just a job, we are all realising the need to protect their earnings instance. Being with Axa brings such a part of this world and it’s good to provide so they’re buying more of that sort of cover power and more skills into the group to help something that will make a difference.” – so quota share, aggregate cover, things us to develop our reinsurance business and The bridges of Venice will have to wait. like that and that’s a trend we’re seeing I’m very excited about that.” more of.” It would also seem that previous According to Romagne, there is a speculation about whether Axa XL’s Bertrand Romagne CV direct correlation between an increase in reinsurance business would continue to 2018 – present: Chief executive, quota share arrangements and earnings write as much cat risk as the business Europe & chief underwriting officer, protection. With cedants feeling less had done previously, given a difference P&C, Axa XL Reinsurance concerned about becoming insolvent, in appetite, was unwarranted. As an having spent the last five to six years underwriter, Romagne says it hasn’t 2015-2018: Underwriting director, prioritising reinsurance spend in this area, changed at all. XL Catlin Re EMEA they are now turning their attention to “We write the same thing. The group 2010-2015: Head of international results and earnings. manages the overall exposure and there are property treaty, XL Re International “The issue has become more to do many ways of doing that. We are investing with making sure companies can protect a lot in third-party capital to help with this 2004-2010: Head of property treaty, their results, so their shareholders and as part of the solution. As an underwriter, it Le Mans Re/XL Re Europe stakeholders are confident in their hasn’t really changed anything. We still have business,” he says. “A lot of them have the same level of capacity and we can do as 2002-2004: Deputy head of property started to buy certain covers, especially we were doing before,” he affirms. treaty, Le Mans Re We specialize in providing customized in Europe, to protect their results, but In terms of specific growth areas, Romagne 1999-2002: Head of worldwide the other solution for that, of course, is says that in addition to improving the facultative, Le Mans Re reinsurance solutions to our clients across an quota share because it does two things property side of the book, he expects array of geographies and products. Our network at the same time. It does the protection there to be more focus on longer tail and 1995-1999: Head of facultative, of offices gives us access to expertise around for solvency and it does the protection for casualty business as it’s an area they want MMA Re the world. Our relationships are far reaching. earnings. to continue to develop, as they leverage the 1992-1995: Facultative underwriter “It’s a different way of buying, but because capabilities Axa brings to the scope. And for Mutuelles du Mans the market is fairly good for them, they feel while it might not be a big topic in 2020 for 360° THINKING Find out more at aspen-re.com

DAY 1: SUNDAY 17

Baden-Baden 2019 Day 1.indb 17 18/10/2019 16:42 Baden-Baden 2019 Day 1.indb 18 18/10/2019 16:42 BIG QUESTIONS: REINSURER OF THE FUTURE The reinsurer of the future

Leading executives discuss what capabilities reinsurers will need to thrive in tomorrow’s world

What will the reinsurer of the future look that, the reinsurer of the future will be a the ability to offer them new products, like? Will scale be an imperative in the much more data-driven business than in knowledge, advice, and support through years ahead? the past. technology to help them meet their growth and strategic objectives. Doris Höpke, board member, Munich Alkis Tsimaratos, managing director, Re: Well-diversified reinsurers that are head of western and southern EMEA, Jörg Bruniecki, head of global clients able to address an ever more complex risk Willis Re: Client-centricity and capital and broker management, PartnerRe: landscape with adequate solutions will agility will define the reinsurer of the future. To remain relevant, reinsurers must have a key role. Effective and sustainable Reinsurers need to evolve into business continue to invest in improving their risk transfer is based on an unquestionable partners that can look at clients’ needs underwriting capabilities by better financial capacity as well as comprehensive across their portfolios. They also need to leveraging available data and technology risk expertise. This allows reinsurers to act have the scale to access different pools of and driving cost reductions in their back/ as a reliable partner under challenging capital with different returns – whether middle-office functions. circumstances and to invest in innovation, those are internal pools or external ones. Over time, we anticipate a bifurcation in talent and technology to support business the market with the top 10 larger, more development. The size and scale of relevant reinsurers at one end of the “ spectrum and specialist niche players at Jonathan Parry, CUO, QBE Re: Scale is a reinsurer has become the other. important as it provides both efficiency more important than ever and multi-class expertise, but there’s always as clients reduce their Where can technology most benefit the room for smaller reinsurers with specialist reinsurance operating model? product expertise. reinsurance panels and demand more tailor-made Reichelt: Data is increasingly important Frank Reichelt, head of northern, central reinsurance solutions across various parts of the risk value chain and eastern Europe, Swiss Re: Reinsurers Michael Pickel ” and is helping ceding companies better will further sharpen their profiles: on the understand their exposures, and ultimately one hand we will find full service providers purchase protection, more effectively. with a huge range of expertise and know- Jean-Paul Conoscente, CEO, Scor Global There are many ways to best make use of how; on the other, pure capacity providers P&C: The reinsurer of the future will need data analytics. Some of our solutions can will continue to play their role in the to be adapted to the changing needs of its be ready-to-use tools or approaches we market. Reinsurers that operate somewhere clients. But scale is only part of the answer: can just “plug and play”, others are tailored in between might fail on both ends. while the insurance industry is indeed solutions we co-create with clients. concentrating and in need of reinsurers Michael Pickel, executive board able to act as partners on a global basis, the Pickel: Data analytics is a crucial capability member, Hannover Re: The size and nature of the demand of treaty clients is for a reinsurer today. At Hannover Re we are scale of a reinsurer has become more evolving as well. already automating parts of our processes, important than ever as clients reduce their Clients are now expecting from reinsurers especially with regard to decision-making. reinsurance panels and demand more not only capacity to protect them for We aim to significantly increase the share tailor-made reinsurance solutions. Beyond capital and balance sheet events but also CONTINUED ON PAGE 21

DAY 1: SUNDAY 19

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CONTINUED FROM PAGE 19 of insurers, but that of reinsurers with a insurance gap on tangible assets continues The free mobile app for global commercial and specialty (re)insurance professionals service-orientated business model too. to be wide. To remain relevant, it is even of such automated processes within our more important that reinsurers work in operations wherever it makes sense. Conoscente: The value chain of close partnership with their clients to help (re)insurance is evolving. The clear find solutions to complex risks. Reinsurers Höpke: Risk transfer and risk management separation of the past between insurance that don’t compete with their clients but can benefit in many ways from technology and reinsurance is blurring as the larger rather are 100 percent focused on their and data. The reinsurance offering must insurers are developing and acquiring clients’ success will have an important place include solutions that ultimately help reinsurance activities to optimise their in the value chain. cedants better serve their customer capital base, hence gradually becoming base, be it with new products, services, competitors. We believe this blurring will The risk landscape is underwriting or claims settlement. Imaging continue and that reinsurers will need more “ technology can speed loss adjustment and and more insurance expertise to address changing rapidly, generating ensure that insureds are indemnified more their clients’ needs for new products, new opportunities to quickly after disastrous events. knowledge and advice. reinsure intangible assets On the opposite side of the value chain, Parry: The future of reinsurance is all about ILS has established itself as a credible such as cyber risks and data. The better the data, the better insight source of alternative capital despite the intellectual property we, as reinsurers, can get and the better the difficulties it faced following the 2017 Jörg Bruniecki ” products we can offer our clients. It will also and 2018 losses. Reinsurers will need to vastly benefit efficiency for both reinsurers further integrate the growing weight of and cedants, which will ultimately benefit these instruments within their strategies. What emerging risks are on your radar? their clients. They represent on the one hand a source Is the reinsurance industry equipped to of financial contestability and, on the properly handle these risks? Tsimaratos: It is early days, but risk- other, a powerful risk management and tracking and mitigation emerges as a retrocession tool. Tsimaratos: In order of importance, climate theme for technological deployment. change, cyber and technology (AI and its Connected cars, homes and lives provide Höpke: Alternative capital is predominantly implications). I would add political risk an enhanced framework for risk mitigation used in externally modelled nat cat and financial instability as the world is which, when embedded into a reinsurers scenarios and has not replaced traditional undergoing fundamental changes which offering, enables them to run more efficient capital in other lines of business. will no doubt have an impact. The industry risk mitigation and claims management, Professional reinsurers are not only acting is well equipped to not only handle these and ultimately more competitive pricing. as capacity providers in nat cat risks, but risks but, more importantly, to influence also providing solutions in long-tail and the way they develop. We have the Bruniecki: Reinsurers’ back- and middle- specialty lines. intellectual horsepower as a community to office functions will derive the biggest Furthermore, we serve our clients by respond, but competitive forces prevent benefits from technology. The efficiency providing additional value and services us co-ordinating our response where gains in distribution are not great enough along the value chain. Therefore, we invest appropriate. in reinsurance to fundamentally disrupt a in innovation, data analytics and cyber business model that is highly dependent topics to provide value-added solutions for Höpke: The most obvious emerging on trust and relationships. our clients. risk on our radar is cyber. Years ago we began building up expertise and entering The future of reinsurance is Tsimaratos: Some are already feeling the into partnerships to effectively address “ strain, such as smaller following players/ cyber risks both within our internal risk all about data. The better the syndicates. The era of silo underwriting management and in the form of insurance Personal Feed: Recommended Feed: Topics/Companies/ Alerts: data, the better insight we, is over and following markets with covers for our clients. The specific challenge Build a customised feed of 10 top daily articles from Publications: Internal and push notifications as reinsurers, can get and the segmented appetite and limited client of accumulation risks, from a global IT latest content from over 100 the industry’s most trusted Dedicated pages for for significant events better the products we can focus will be cut out except for some virus or data breach for example, is closely industry specific pages sources categorised content specialty areas. This will be of benefit to monitored by a team of specialists and offer our clients the more client-centric reinsurers climbing our instruments are permanently being Jonathan Parry ” up the value chain by looking at the value developed by using our internal expertise of their capacity offering, not only the cost as well as by partnering with external cyber of it. specialists. Download and follow: Can reinsurers be cut out of the value chain? What can reinsurers do to prevent Bruniecki: The regulatory environment Parry: Cyber is still front and centre among this? is not getting any easier and stakeholder the emerging risks. Major insurers are now expectations are high, diverse and complex. coming out to say they are addressing Reichelt: Yes, unless reinsurers can add The risk landscape is changing rapidly, silent cyber. With some saying they will no more value to the clients than other service generating new opportunities to reinsure longer accept silent cyber exposure providers. Start-ups and InsurTechs are intangible assets such as cyber risks and by explicitly excluding or including, not just challenging the business model intellectual property. Meanwhile, the CONTINUED ON PAGE 23 www.slipcase.com DAY 1: SUNDAY 21

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CONTINUED FROM PAGE 21 How will the role of the reinsurance Brokers are acting in broker change in the marketplace of the “ I believe reinsurers should and will follow future? a highly competitive this lead. In which case, cyber coverage environment – similar if not would be excluded from general property Tsimaratos: It will be deeper, broader even tougher than the one KNOW FIRST. UNDERSTAND MORE. and casualty reinsurance and separately and stronger. In the past 20 years the insured/reinsured. So, rather than having reinsurance broking industry is one that for reinsurers. No surprise Insight and intelligence on the global wholesale, specialty and (re)insurance industry the uncertainty of having it covered as has seen the biggest changes in the that we have seen M&A and part of other classes it will be protected reinsurance chain. We have moved from continuous rumours about as its own distinct class. It will go in this being isolated, transactional intermediaries direction, but the question is how long it to deeper strategic capital and earnings more to come will take to get there. management advisers. Today, we are all Frank Reichelt ” asked to support our clients to make sense Reichelt: Digital technology’s clash with of a broader, more complex and changing all expanded their scope and built out their legacy hardware, risks emerging from the environment. The more changes and advisory and analytics capabilities. spread of 5G mobile networks, increasingly complexities there are, the greater becomes I see this as a plus for Hannover Re limited fiscal and monetary policy the need for intellectual capital within our because we have such a preferred flexibility, genetic testing and its effects on firms. partnership position that we can grow the insurance industry as well as the effects along with them. Yet we will also see of climate change on public health are the Conoscente: From the point of view of new models emerging, maybe more key risks we have identified. a reinsurer, brokers have a fundamental specialised and regional players entering role in the value chain. They face the same the broker market. We are keen to engage Pickel: The industry’s main focus is on challenges and opportunities as we do, with incoming players if they differentiate cyber risks but we are also watching issues including market and pricing trends and themselves and bring new ideas. Full access such as global warming, superbugs that the impact of technology, and we find could develop antimicrobial resistance answers to these together. To coin a word to all of the and nanotechnology, to name but a few. widely used these days, we are part of the news, opinion and The world is changing at a record pace same ecosystem and we see them as true CONTRIBUTORS analysis articles on The and so are the associated risks. For partners. Insurance Insider website reinsurers it’s more important than ever Jörg Bruniecki, head of to keep aggregate limits under control Bruniecki: It has already changed global clients and broker and make sure underwriting is risk- considerably and the transformation is management, ParternRe A daily morning briefing email adequate. ongoing. Brokers have a role as trusted partners for their clients to make the best Lack of historical data and capital and risk management choices, A weekly printable electronic issue focused Jean-Paul Conoscente, “common methodology for where reinsurance is just one solution in a on insightful analysis and authoritative opinion spectrum of possible alternatives. Beyond CEO, Scor Global P&C defining and assessing cyber that, clients are seeking advice from their events makes adequate broker partners on a broader spectrum of Instant newsflashes on major developments pricing and modelling a issues. To satisfy this demand, brokers will Doris Höpke, board real challenge member, Munich Re A range of other emailed content including our proprietary share need to find and retain talent from a Jean-Paul Conoscente” more diverse range of disciplines with price index, The Insider 50 and Insider Analysis collaboration at the heart of successful Conoscente: Cyber risks are exponentially broking businesses. That is not an easy Jonathan Parry, CUO, Access to IQ, The Insurance Insider’s quarterly publication increasing, fuelled by the digital nut to crack. QBE Re transformation of our society and the interconnectivity of the global economy, Reichelt: Brokers are acting in a highly Access to rankings reports on niche sectors including cyber, D&O and political risk but cyber reinsurance remains a nascent competitive environment – similar if not Michael Pickel, market. even tougher than the one for reinsurers. executive board Lack of historical data and common No surprise that we have seen M&A and member, Hannover Re Discounted entry to a range of events globally, from full-day conferences methodology for defining and assessing continuous rumours about more to come to executive briefings and networking cyber events makes adequate pricing and in this respect. Currently brokers are Frank Reichelt, head of modelling a real challenge. Nevertheless, competing with knowledge companies like northern, central and the industry is developing the tools and reinsurers, consultants, specialised service eastern Europe, Swiss Re know-how to tackle these risks, and some providers on who can offer best know-how commercial models are now available. and solutions to the customers. Alkis Tsimaratos, Reinsurers have a key role to play in managing director, head ensuring the conditions are met for the Pickel: Consolidation of the broker industry of western and southern cyber risk coverage market to develop has certainly been a dominant topic over EMEA, Willis Re REDEEM YOUR FREE TRIAL further. the past few years. The large brokers have insuranceinsider.com/free-trial DAY 1: SUNDAY 23

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LMCBaden-Baden one pager_usA4_218 2019 Day 1.indb oct.indd 24 1 18/10/2019 14:1116:42 Q&A Q&A Maintaining momentum Odyssey Group president and CEO Brian Young explains why discipline will be a key feature of the 1 January renewals for primary carriers, reinsurers and ILS players alike

What are your takeaways thus far in 2019? Excess of loss pricing will be subject to remained largely intact for two decades. I did not expect insurance markets to firm increasing discipline, but whether this Not having to answer to new masters every as much they have, especially in North translates to higher prices will depend on few years has allowed us to maintain our America, and the pace of improvement is individual account circumstances. Clean discipline and manage the business for the accelerating, which is great to see. I was business should expect a flat risk-adjusted long term. in Germany in July and even industrial fire renewal, and any account with losses during The focus on diversifying risk has been a business there, which has long suffered from the last few years should anticipate paying key factor in our growth in recent years, but intense competition, is showing meaningful more again in 2020. it has also played an instrumental role in signs of improvement. A common refrain helping us to generate underwriting profits we hear, “pushing the market”, is the The reinsurance market the last two years in spite of the abnormally contraction in capacity from many carriers. “ high level of cat activity. Our underwriting On the flipside, the reinsurance market response continues to be success in 2017 was driven by a 91.9 percent response continues to be disappointing. In disappointing. In most parts combined ratio in our Hudson and Newline most parts of the world, reinsurance rates of the world, reinsurance insurance operations. In 2018, it was our are flat to down, and commission levels rates are flat to down, and reinsurance operation that delivered remain stubbornly high. Reinsurance rates exceptional results, producing a market- have not moved nearly enough to address commission levels remain beating combined ratio of 89.9 percent. Our the loss activity of 2017 and 2018, or the stubbornly high results the last two years are a convincing significant rate erosion during the last ” display of the value of Odyssey Group’s decade or a casualty claim pipeline that is We have seen an increase in the demand portfolio diversification. bursting at the seams. Getting a 25 percent for aggregate covers the last few years. increase on one third of a loss-affected These structures have increasingly become Odyssey Group has grown significantly cat placement up for renewal provides more complex in scope. In my view, these in the last few years. What have been the little solace, especially when the rate has will get harder to place as reinsurers and main drivers? more than halved over the last decade and the ILS market push terms, exercise more As I said earlier, diversification has played a reinsurers’ retro costs have spiked. And with discipline and show greater appetite for huge role in our growth the last few years. commission levels generally running in simpler risk- or event-based structures. Across our three platforms and 36 profit the mid-30s for all but the most distressed centres, our top line has expanded 40 business, reinsurers will continue to How much of a factor will ILS play in the percent from $2.4bn in 2016 to $3.3bn in struggle to generate adequate margins on 2020 renewal cycle? 2018. Through the first six months of 2019, proportional business. Retro capacity has become more precious our top line is up an additional 10 percent One positive on the reinsurance side is the and certainly more expensive the last two and our new business pipeline remains increased demand from buyers to purchase years. While a low interest rate environment solid. more cover. We started to see it in the will continue to draw capacity to the sector, The primary areas of growth have been in second half of 2018 and it has continued the days of cheap retro are over, at least for specialty lines, most notably in crop, motor, in 2019. The increased opportunity is a the next few renewal cycles. This should health, credit, affinity and cyber. We have pleasing development at a time when introduce more pricing discipline into cat also been growing selectively in property original prices are moving in a positive business and will force some reinsurers to and casualty where results have been solid direction. adjust their risk appetites. and/or where pricing and terms have been improving. What are your expectations for the Odyssey Group has had an exceptional 1 January renewal, in the absence of run in recent years and even managed any material loss events between now to generate underwriting profits in 2017 and year-end? and 2018 when few peers did. What are Insurance markets should continue to the key factors driving your success? firm in 2020. I do not anticipate that the It helps to be a little lucky, and we have renewed pricing and capacity discipline had our fair share of good fortune in recent that we are seeing from insurers will years. As a group, we pride ourselves on change anytime soon. the stability of our workforce and the Reinsurers will benefit from rising consistency of our underwriting and insurance pricing on proportional contracts, claims handling. Discipline is embedded and commission levels should continue to in our culture across our three platforms Brian D Young trend down, especially where experience – OdysseyRe, Hudson and Newline – and President and CEO, Odyssey Group warrants a reduction. embraced by a leadership team that has

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Baden-Baden 2019 Day 1.indb 25 18/10/2019 16:42   EVENTS 

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Baden-Baden 2019 Day 1.indb 26 18/10/2019 16:42 Q&A OPINION Emerging from the shadows asualty (re)insurance is often Calendar Year Reserve Development by Quarter for Top 35 Covershadowed by developments GlobalCalendar P&C year Carriers reserve vs developmentAccident Year by Reserve quarter Experience for top 35 –global P&C in property lines. As the last two 1998carriers to Q2vs accident 2019 year reserve experience – 1998 to Q2 2019 years have shown, the human impact and devastating damage caused by Average quarterly calendar year reserve novements as % of equity (LHS) 7% Accident year loss experience, all lines (RHS) catastrophes such as hurricanes, 140% typhoons, wildfires and earthquakes 6% Strengthening phase tend to dominate the headlines. 5% 130% The casualty market rarely gets the same 4% 3% 120% level of attention, even though it has been Overreaction phase 2% the main catalyst of nearly all past market 110% turns. Its underlying complexity, driven by 1% human behaviour and other (medical, legal 0% 100% -1% and economic) factors, makes it difficult to 90% assess financial losses and, by extension, the -2% -3% Danger phase adequacy of underwriting. Long-tail risks 80% -4% are particularly vulnerable to unanticipated New danger phase? Windfall phase! developments that are not priced at policy -5% 70% inception. The asbestos crisis of the 1980s 1998 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 took seven or so decades, and a revolution in injury law, to manifest, while prolonged Source:Source: Guy Guy Carpenter Carpenter uncertainty about the UK Ogden rate has forced carriers to readjust their assumptions. frequency and severity observed in several may be in a danger phase in which carriers classes, including the US commercial motor are continuing to release reserves even as Claims environment market most prominently, but also directors’ accident-year experience indicates that Favourable conditions in liability lines – for and officers’, medical malpractice, general redundancies are diminishing. The overriding example, a benign inflationary environment liability and other liability lines. trend in recent years towards fewer reserve and historically low loss experiences – have It typically takes a significant amount of releases is clear to see and may partly reflect nevertheless supported underwriting time for long-tail claims trends to emerge the deteriorating claims environment. results for much of the current decade. fully. The loss potential associated with Notably, Q2 2019 was only the second time This period of low loss cost inflation and opioid addiction is just one example that since 2004 that the sector experienced net frequency has enabled carriers to release could have serious implications for the reserve strengthening. redundant reserves into earnings, thereby sector on this front. Furthermore, the degree At the very least, our research indicates compensating for historically low investment of change that is to come with technological that carriers can no longer rely on reserve yields, as well as elevated catastrophe losses. disruption, the shift to intangible assets and redundancies to protect or enhance profits But the situation now appears to be the transfer of liability from individuals to as they have done since the mid-2000s. changing as a combination of higher loss large manufacturers has the potential to costs, increased severity and growing redefine liability risks like never before. Value of reinsurance instances of adverse reserve development This backdrop points to the value of are squeezing carriers’ margins in a number Enough in reserve? reinsurance solutions. Freeing up capital of liability classes. Spiralling litigation, higher There is therefore growing evidence that can enable carriers to enhance capital costs and bigger jury awards (and attitudes) loss-cost pressures are starting to build in management strategies and improve have coincided with some prominent the casualty market. The recent, and often capital efficiency. Transactions can take carriers rethinking underwriting appetites notable, pricing increases observed in many forms, including new quota share and pulling back or withdrawing capacity. several business lines support this theory. programmes, adverse development covers Although these factors can be difficult Given the smaller pool of carriers operating and loss portfolio transfers. Although market to quantify, some areas are clearly seeing in the global casualty market, it is more conditions are tightening in some areas, increasing pressures. Federal securities class vulnerable to capacity constraints should cover remains available for those with the actions (and costs) in the US, for example, carriers’ claims assumptions change. foresight to move quickly. It is clear now is have risen in recent years. The number of The difficulties posed by estimating total the time to seek protection. companies being sued for securities claims ultimate losses for long-tail business mean has nearly doubled in the last three years, sector capital levels become uncertain when Carolyn Morley while median settlement values jumped reserves, which can represent multiples of Managing Director and Chairman of last year to reach a decadal high of $13mn, annual earned premiums and equity, begin Global Casualty, Guy Carpenter according to National Economic Research to appear deficient – even at the margin. Julian Alovisi Associates. This has coincided with rising While reserve adequacy is notoriously Head of Research and Publications, legal services costs. difficult to predict, the analysis shown in Guy Carpenter This is indicative of increased loss the chart above implies that the sector

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Baden-Baden 2019 Day 1.indb 27 18/10/2019 16:42 Adaptation Facing volatility from increasingly complex risks, rising claims costs and new regulatory pressures, clients can prosper by adapting to the challenges and seizing new opportunities. Guy Carpenter’s innovative, dynamic and tailored solutions help clients make informed decisions that achieve profitable growth.

Baden-Baden 2019 Day 1.indb 28 18/10/2019 16:42