PCS Global Terror loss aggregation & index service launched

by Artemis on January 24, 2018

Property Claim Services (PCS), a Verisk Analytics business, has now launched its awaited latest industry loss data solution for global specialty insurance and reinsurance lines, a new loss aggregation solution and risk transfer index for terrorism risks.

Artemis covered the impending launch of the PCS Global Terror loss aggregation service recently, revealing that the service would feature historical terror insurance industry loss estimates and a risk transfer index for loss events worldwide.

Now the service has been officially launched with the backing of some major reinsurance and ILS industry players.

PCS said that the new service is a response to industry demand for new risk transfer tools in a broadening array of classes of insurance business.

The PCS Global Terror launch comes soon after the launch of its Marine & Energy Industry Loss Estimates & Index, and the launch of the PCS Global Cyber Index service. PCS’ expansion into new specialty lines classes of business assists the market in taking steps to transfer risks, particularly retrocessional reinsurance in industry loss warranty (ILW) form.

PCS Global Terror offers market participants an “unbiased view of the industry loss for some of the most sensitive insurance events worldwide.”

As well as the historical data on terrorism losses, the index can be used to facilitate reinsurance and alternative risk transfer transactions, including industry loss warranties (ILWs) or catastrophe bonds, helping the market to better protect itself and supporting expansion into these lines.

Tom Johansmeyer, assistant vice president, PCS, commented on the launch, “Terror has been a difficult risk for the global insurance and reinsurance industry. Accumulations have risen over the past few years as reinsurers have accepted the terror risk into natural catastrophe programs to hold the line on pricing. Transferring the risk cost-effectively becomes tough when the risk bearer isn’t compensated for taking the risk up front. Alternative sources of capital and industry loss triggers may provide a greater opportunity for capital management.

Continuing, “Historically, the terror ILW market has been constrained by the lack of a credible, independent industry loss index. We launched PCS Global Terror at the specific request of several clients because they wanted to improve how they manage terror risk, but the tools already in the market weren’t sufficient. We’ve listened closely to the insurers, reinsurers, and ILS funds pioneering coverage for this risk and included their feedback to ensure we would bring a useful and reliable loss aggregation platform to market.”

Alex Mican, product development manager, PCS, also said “With a consistent, rigorous approach to industry risk loss aggregation, PCS Global Terror should help companies understand losses and transfer risk more effectively. We believe that the launch of this index can help grow an ILW market that could provide access to much-needed capital markets capacity and increase retrocessional activity—two key factors in growing the overall cyber insurance market worldwide.”

Ted Gregory, director of PCS Operations, added, “It’s exciting to see PCS grow beyond our traditional property-catastrophe scope. Our specialty lines methodology—developed originally for marine and energy loss events—has demonstrated its effectiveness over the past year. In addition to investigating several marine events, we’ve designated and produced estimates on three in the cyber area.

“Across terror and our other specialty lines solutions, the PCS Operations team has produced estimates on nearly 50 events. In addition to validating our approach and capabilities, this volume also demonstrates that PCS is designed to be useful. We set our thresholds low enough to provide a steady stream of information to our users around the world, and that’s the best test of any loss aggregation platform.”

PCS says it will provide an unbiased view of global terror insurance loss events, putting its independent loss aggregation platform to work in another specialty class of business.

The industry has been extremely receptive and this bodes well for the data and risk transfer index being utilised for trading in global terror reinsurance risks, by traditional and alternative market or ILS players.

David Priebe, vice chairman, Guy Carpenter & Company, LLC, commented on the launch saying, “The global terror market has needed a reliable, independent index for quite some time. As terror pools continue to increase the sophistication with which they manage risk and capital, reinsurers will need more retrocessional alternatives to support these unique clients. PCS has entered the global terror space at the right time. There’s a market in need and a collection of capacity providers that has expressed a clear interest in writing more terror business—as long as they have the right trigger. It seems PCS Global Terror is that right trigger.”

Kean Driscoll, CEO of Validus Re, also said, “The creation and development of non-governmental, private market risk-sharing mechanisms for the protection of losses arising from acts of terrorism requires innovative initiatives like the PCS Global Terror Index in order to bring more capital into the terrorism insurance market. As government back-stops like TRIA/TRIP recede, the private market can provide the solutions and the necessary capacity to cover conventional terrorism risks, and the private market can then function as intended in providing the appropriate pricing and risk mitigation in addressing these risks. We thank PCS for their commitment to expanding the role of the private market in terrorism insurance.”

John Seo, cofounder and managing director, Fermat Capital Management, LLC, explained how the PCS Global Terror trigger and risk transfer index could be used by the ILS market, “To many ILS [insurance-linked securities] investors, natural catastrophe risk all looks so easy now. But in the early days, the trepidation of potential risk takers, intermediaries, and modelers was high. What did those early pioneers do? They used industry loss statistics as their lodestone. So, anyone who navigated through the dawn of the ILS market should immediately recognize the pattern here: first comes an industry loss standard, then comes a growing market willing to apply itself to the risk.

“It won’t happen overnight, but the launch of PCS Global Terror is a good and necessary start to the formation of what we, as a society, should hope will become the deepest and most informed market possible for terror risk.”

Also commenting from an ILS market perspective, Neil Strong, global head of origination at Securis Investment Partners, said, “PCS is an integral service provider to the global reinsurance industry. In addition to their core property expertise, they are driving innovation by providing services in cyber, global marine and energy, and now, global terrorism. In global reinsurance, the power of the collective comes from the scarcity of information that plagues the analysis of new and emerging risks. PCS have been helpful to us in understanding, analyzing, and differentiating these complex risks.”

Nick Cook, underwriter at Fidelis Insurance, added, “Fidelis welcomes the launch of the PCS Global Terror Index in creating a new tool to assist insurers’ and reinsurers’ product innovation in the terror insurance space.”

Dr. Raveem Ismail, director, (re)insurance, Fractal Industries, also commented, “Throughout my insurance career, bringing contextual analysis to man-made perils such as terrorism has been a priority. Such a pursuit, by practitioners everywhere, has always been hampered by a lack of market loss data, without which any analytical underwriting remains in the wilderness of uncalibrated modeling. This index is an important step by an institution of repute in the insurance world.”

Dr. Rachel Ann Carter, MSyI, AmTrust, finally said, “Terrorism has traditionally been challenging to conceptualize and quantify due to limited data availability and the changing attack vectors. Global terrorist networks are highly adaptable. As global terror threats evolve, new threats emerge, including cyber terrorism. Access to an index containing quality data will help resolve a number of underwriting and pricing challenges. Terrorism presents a great opportunity for the insurance market to demonstrate its value. Hopefully, the PCS Global Terrorism Index will support enhanced product offerings within the commercial insurance market and offer validation for existing product offerings.”

These encouraging comments show that the industry, both on traditional and alternative sides, is ready and eager to make use of the new PCS data and industry loss index service. Its uptake could help ILS funds expand into a new specialty arena.

The PCS Global Terror database already includes estimates for 14 historical terror events, including the 2016 attacks in southeastern Turkey, Brussels Airport, and the Nairobi mall terror attack. As of this launch, the full historical database is complete and ready for the industry to use, as is the process for developing and reporting on future terror industry loss estimates.

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