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Market Holds Breath As Irma Approaches Insight and Intelligence on the 2017 Reinsurance Rendez-Vous de Septembre 13 SEPTEMBER 2017 12 SEPTEMBER 2017 11 SEPTEMBER 2017 10 SEPTEMBER 2017 WEDNESDAY TUESDAY MONDAY SUNDAY Market holds breath as Irma approaches he global (re)insurance market is access to new sources of capital, albeit with thinly-capitalised local players following the Tmired in uncertainty as it follows the core returns under increasing pressure from drawback of the nationwides after earlier cat fate of Hurricane Irma, which has the compound rate reductions. events. potential to become the most expensive Sources have said that a $80bn-$100bn loss All buy to low attachment points and insured loss ever. would create signi cantly more distress, but will hand substantial losses to their treaty Irma, one of the most powerful storms in there is con dence that an event of this scale reinsurers, with the programmes of the history, has held the (re)insurance sector could be weathered without widespread nationwide and commercial writers also trans xed for days, with its projected failures. likely to deliver claims to cat writers despite track oscillating around the sector’s peak If the losses did mount to the their major retentions. exposures in Miami, and the stock market $125bn-$150bn range, sources suggested Traditional cat treaty reinsurers, operating oscillating in response to perceived clues on that market turmoil would ensue, with the with a global premium pool of around the possible scale of losses. potential for failures beyond the primary $20bn, could nd themselves carrying tens At the time of writing, the point where the Floridian property market, losses to the of billions of dollars of losses. storm will make landfall and its path along Lloyd’s Central Fund, and downgrades and The retro market will also be heavily the Florida peninsula remained unclear, capital raising even at some of the more impacted, with scope for most programmes although the latest National Hurricane respected companies. to be exhausted, given the relatively low Center forecasts suggested landfall on the Perhaps with this latter scenario in mind, return periods that cat writers typically buy west coast, with the city of Tampa potentially Sompo International CEO John Charman said to. receiving a direct hit. late last week: “It is the Night of the Long Florida is ground zero for the insurance- The insured loss quantum is highly Knives. Those who emerge at the end of linked securities (ILS) market and it will sensitive to the storm’s exact path. September will be worthy of it.” pick up swingeing losses from primary A direct hit on Miami – an increasingly reinsurance, retro and cat bonds. unlikely outcome – and an unfavourable Harvey vs Irma For Lloyd’s, with its cat treaty exposure and track up the coast opens the sector up Irma as a loss will contrast sharply with huge coastal wind exposures via its open to $150bn+ of losses, whereas a more its near predecessor Harvey. Harvey is a market, and particularly binders’, property favourable central path could see the storm ooding event that will be majority-retained books, as well as specialty lines like marine cost just a third of that. The west coast also by the primary market, with a signi cant and energy, Irma is set to be a clash loss. has a major concentration of insured values auto component and a highly uncertain and could su er a loss somewhere between commercial property loss quantum Early manoeuvres the two. concentrated in Houston. The extent of Irma’s impact is unclear, but This leaves insurers, reinsurers, retro Irma will be a wind and storm surge loss at minimum it looks likely to be the biggest providers and brokers in limbo as they wait concentrated in coastal Florida. The majority insured loss since Hurricane Katrina, which to determine where the loss falls within of the gross loss will come via Florida cost the industry around $50bn in 2005. the $50bn-$150bn range, and quite how homeowners’ policies, with a signi cant Then there is the complex and thorny loss distressed the sector will be. minority from commercial property and a from Harvey, which is creating signi cant At $50bn, (re)insurers would be dealing relatively modest auto tally. uncertainty around outwards reinsurance with a Katrina-size event at a time when The Floridian homeowners’ market, Continued on page 6 carriers have stronger balance sheets and particularly in coastal areas, is dominated by 04-05 Irma 10 Irma 15 Irma Florida reinsurance market Who writes the Florida Cat bond market in share analysis Cat Fund? the crosshairs INSIDE 08 Irma 13 Irma 32-35 Exec comp Citizens reinsurance PML analysis for US Run-down on the sector's programme, blow-by-blow wind losses highest earners www.insuranceinsider.com This year marks our 10th anniversary. We would like to take this opportunity to thank all the brokers, clients, friends and peers who have supported, challenged and inspired us along the way. www.barbicaninsurance.com Connect with us AVIATION & SPACE | CASUALTY | CYBER, TECHNOLOGY & MEDIA | ENERGY | FIN PRO | HEALTHCARE | MALICIOUS ACTS | MARINE | PI | PROPERTY MMC Advert-Jun17.indd 3 01/09/2017 14:57 NEWS COMMENT Night of the long knives wards acceptance speeches are to have a rude awakening. external rivals were rounded up and killed Ausually quite predictable. And just as for a nervous traveller shutting and Hitler’s supreme grip on power was But when a Cat-5 hurricane is hurtling up the house before going on summer consolidated. towards Florida, predictability is the rst vacation, the lingering doubts and nagging Our version will be di erent – and happily casualty. questions were never far away: far healthier. Add to that one of the award recipients “Did I shut o the gas?” Our major events never allow a single being someone as independent-minded as “Have I cancelled the milk and winner to take all. Yes, the weak get killed, John Charman and the chance of a major newspapers?” but in our version of Depression-era surprise receives a big upgrade. The industry equivalents are: Germany, new parties would be formed, At the Insider Honours in London on “Do I really have an accurate handle on my the Nazis would be forced into coalition or Thursday night, Mr Charman told a aggregates?” out of government entirely and the Second 600-strong audience of peers that the “Will my reinsurance/retro perform the World War would never take place. industry was about to experience a “night Reinsurance and protection is not a one- of the long knives” in which some of the Out in the hall the mood party state - customers will not allow too suicidal decision-making of the past few was“ not quite sombre, but much power to be held in too few hands. years would be exposed. Prudent management of counterparty The deserving would come through the certainly less celebratory credit risk does not permit it. If we lose ordeal and those that had ignored the basic than in previous years some, we have to create some new ones to laws of our business would not. Out in the ” take their place. hall the mood was not quite sombre, but way I am expecting it to?” As I write, Irma’s track is shifting one way certainly less celebratory than in previous “Will the loss go into the gaps, or expose and another, as is its prerogative – but years. new ones?” Florida is de nitely going to be hit hard. There was a quiet con dence that “Will this event throw up new clashes that This is what we are here for. This is what everything that could be done had been I hadn’t thought of?” we have prepared for. Let’s do the right done – the pre-storm to-do list had been “Are the politicians going to make me pay thing by our customers and rise to the carried out to the letter. But a nervousness for things that are de nitely not covered immediate challenge of tomorrow and the was palpable. and for which I haven’t been collecting any weeks and months ahead. Good luck. A standard conversation with a senior premiums?” executive at a carrier on the night would The only rational answer to these begin with the con dent expression that questions is wait and see – all will be his or her organisation was sure it had its revealed next week and beyond. Mark Geoghegan, house fully in order. But in almost the same The original night of the long knives was Managing Director, The Insurance Insider breath that person would con de that they a savage purge carried out in Nazi Germany knew of at least two peers who were likely in the summer of 1934. Internal and [email protected] UK government backs Pool Re cyber plans tate-backed terrorism reinsurer Pool What we are really doing is future-proo ng on there being physical damage, Enoizi SRe has gained the UK government’s the cover.” explained. backing in principle to remove a cyber Pool Re is working with government He said the additional exposure caused by exclusion from its coverage and expects lawyers to formulate the necessary changes removing the exclusion could be o set by to o er protection for cyber events from to its underwriting manual and expects an increase in its members’ retention levels 1 April next year. to distribute revised documentation on 1 and Pool Re’s purchase of an estimated Pool Re CEO Julian Enoizi said removing October. £250mn-worth ($326.8mn) of additional the exclusion would mean that cover Speaking before the start of the Monte reinsurance protection that would sit for physical damage caused by remote Carlo Rendez-Vous, Enoizi said he would excess of the retention.
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