Exceedance Keynote Transcript
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Transcript of keynote presentation from RMS’s Exceedance customer conference Released 27 May 2021 Introductory video with music, images and captions: ‘Natural catastrophe’, ‘Cyber attack’, ‘Business interruption’, ‘Wind events’, ‘Systemic risks’, ‘Climate change’. ‘To succeed in 2021 and beyond; Exceedance 2021 outperform’. Compère: Ladies and gentlemen, please welcome RMS Chief Executive Officer, Karen White. [Section excluded from video on dmgt.com due to copyright considerations: Introductory music: ‘The Best’, Tina Turner] Karen White, CEO, RMS: Welcome to Exceedance and thanks for joining us today. [Section excluded from video on dmgt.com due to copyright considerations: Karen White, CEO, RMS: I chose to kick us off with Tina Turner's ‘Simply the best’ this year for good reasons. Yeah, it's an amazing song, and yeah, I'm definitely stuck in the musical past, and yes, I've been a fan of Tina’s forever. But there's more to it than that. A little trivia: ‘Simply the best’ was released in 1991, when Tina was already 52 years old. This woman was born in 1939 and the album came out about five years after she absolutely crushed it with her ‘Break every rule’ world tour. The show was phenomenal. I remember it. She got 180,000 people to show up for her in Rio, breaking not just every rule but all kinds of records. Let's face it, the probability of an over-50, black, female rock artist, with a particularly challenging past, pulling all that off is infinitesimal. If we modelled it, it would no doubt be a one in 100 year event. I promise, I'm getting to the connection of Tina back to us. Tina’s been dubbed ‘the queen of rock'n'roll’, but I've always thought of her differently. I think of her more like the queen of reinvention: smart, agile, adaptive. This year, I think we've all gone through some form of reinvention ourselves and, I got to tell you that a broader reinvention has been top of mind for me most days, as the pandemic hit us hard, alongside everything we already have on our plates and stuff we see coming: the different pressures, dynamics and the new insurance-industry-competitive-threats, that I think are coming around the corner. The song itself, ‘Simply the best’, is also so apropos right now.] 1 Being the best matters a ton more in times of challenge, and in times of change. All the cracks in the foundation show then, you know? So, we've been working on a new framework this past year, that helps us better define what it means for RMS to help our clients to be the best. What are the quality, what standards, partnerships, the transparency, the innovation, agility, investments, and what are the outcomes that we should hold ourselves accountable for in the industry and to you? One of my personal heroes is a VC named John Doerr. He published a great book on the subject called ‘Measure what matters’. He finally wrote down what I've seen in practice over the years, that has led to some really extraordinary outcomes, including Google among them, all in moments of massive industry changes. It's a good read in case you’ve run out of stuff to binge watch. For RMS it's clear we need to hold ourselves to a high set of standards to help you outperform, and we need to measure that. It's not just about the quality of our science and our tech, that we're proud of, what we think about our team, and the depth of our investments, but it's also about defining the very specific standards around ‘best’, and around ‘outperform’, to measure how we've done against those. And then to go one step further and measure the value to you. It's also really clear, we're not alone in this thinking. The pandemic lit a match to our sense of urgency around other potential so called ‘black swan’ events, and all their impacts globally. In turn, Boards, investors, C-suite, they're all asking the right questions about what else is coming on the risk map; how well prepared we are, or not, for it; and how we're measuring that. And actions we need to be taking today and over time around these risks. At the same time, they're asking really tough questions about the return on investments for risk management, demanding to understand what they're getting for these significant capital outlays, as they should. And it's not just the insurance industry. I can promise you, there isn't a Board in the world, and you know this, not having this conversation at some level, with climate change, systemic risk, supply chain, business interruption, pandemic, as well as the broad asset and credit risk being front and centre for many. Our theme this year is to outperform. Let me drill down a minute into what that means for us. Our fundamental goal at RMS is to support you in getting the best possible risk outcomes. Some of the key measures of your success will, of course, include loss ratios and earning stability. So, this year, as part of that framework I mentioned, we did a deep dive, drawing from public data from global insurance and reinsurance companies over the past five years. What we were looking to measure were the risk and business outcomes that our customers were achieving versus others in the market. Given our roots as scientists and the healthy market scepticism we anticipated from you, we welcomed scrutiny and we asked Oxford Economics to do an independent review of all this as well. 2 What we and Oxford found was this. Companies engaged with RMS, who were increasing their engagement with RMS, outperformed the peer group that either wasn't working with us at all, or was decreasing their engagement with us. The results are pretty compelling. The RMS client group over these five years, averaged a 2% lower cat loss ratio. That 2% translated to more than $27 billion in avoided cumulative cat losses over those five years for our customers. As you can guess, a severe catastrophe year, like 2017, yielded twice the average avoided losses, a 4% lower cat loss ratio. The RMS customer group also had a higher and more stable return on equity. They achieved 2.1 points higher ROE values over five years and also, also stayed within a range that is half as wide as the non-RMS peer group. And of course, that stability translates to other positive outcomes as well. Hey, we get that it's not just RMS driving these outcomes. If you take great models and science and tech and drop them into a poorly run shop, it doesn't become a great business overnight. We understand that those of you engaging with us are also making quality-risk investments a priority overall, because you place a lot of value on it, you're willing to invest in it. You're also investing in your own teams and data and systems and otherwise to have the best possible views of risk for your business. That's why I said ‘partnership’ earlier, I really believe it's a partnership between us that optimises for these outcomes. I also believe that partnership approach is going to be even more important and interesting as we set out to tackle the much more complex risk environment that we see coming. We’d be thrilled by the way to share with you all this analysis. Another aspect of supporting your outperformance, that we measure, is all around event response. We’ll continue to measure how we do with each event. We’ll continue to focus on transparency. And we can demonstrate today that we have the best record in the industry. An example, with American hurricanes our midpoint losses total of $85.7 billion, which was within just 2% of the actual total losses reported downstream, when all was said and done. Event response is a big part of what we all do today, but it's going to grow even more in importance in a world of more frequent, severe and systemic events. For that reason, we're committed to investing more in event response to bring you new capabilities. In fact, Moe and Cihan are up next, and they're going to show you some of the early new event response innovations that we're launching now. I want to switch gears, from outperformance, and talk about which risks we think will have a greater impact going forward, and where we're spending a lot of our time and investment now, and over the coming years. 3 First, of course, getting through the pandemic. Next, is the increasing frequency and severity of some of the mature primary perils, and secondary perils, which as a class are having loss impacts more in line with primary perils now. The two most complex sets of risk on our list today are climate change and systemic risk. Let's start with the pandemic. $36 billion of losses from Covid have been reported so far. Dowling and others peg losses at up to $80 billion, so there's still a significant amount working its way through the system. Losses are coming in at a far slower pace than anything we've seen previously. There remains a lot of uncertainty and coverage issues like around BI (Business Interruption). But BI ultimately will be less than half the losses overall; with professional and commercial liability, D&O (Directors & Officers insurance), speciality lines accounting for a significant share when it's all said and done.