Broker facilities “casino” underwriting: Victor Peignet, SCOR

Victor Peignet, CEO of SCOR Global P&C, the property and casualty division of the global reinsurance firm, is not a fan of broker facilities because there is no “skin in the game”.

“I don’t like those,” he said, speaking to Artemis at the 2016 Monte Carlo Reinsurance Rendez-vous. “It’s a question of portfolio. What I don’t like in many of the broker facilities is there is no homogeneity of the portfolio – they put together all sorts of things – it becomes a soup with carrots and potatoes and whatever else.”

“The problem is that reinsurance is mutualisation of risk, and if those facilities have no consistency, well then it is casino business in my opinion. I think a facility that would be very well defined, you define the type of risk you want to put in the facility and you have a frame and can control each and every risk within the frame, why not, it makes sense. But that’s generally not the way it is done at the moment.”

Scor has benefited from more cost-effective and plentiful retrocession capacity in recent years, explains Peignet. “I found retrocession horribly expensive until a few years ago. Until a few years ago the RoE of the retrocessionaires was far better than the RoE of the reinsurers and the RoE of insurers. The situation today is a nice rebalancing.”

“For historical reasons we had to construct a retrocession policy,” he continues. “When we resurfaced in 2005 and got back our A rating, the rating agencies and our shareholders were adamant that we had to be protected.”

“So the mandate was very clear, we want you to be profitable every quarter,” he adds. “If you have that sort of mandate you have to construct retrocession. Retrocession becomes a tool. Today everyone does it but at that time we had to do it and now because we did it and became like a strategic buyer.”

Over time alternative capacity, including cat bonds and collateralised reinsurance, has become an increasing part of that strategic retro purchase, says Peignet.

“We have had the same lead retrocessionaire for something like 30 years. For alternative capacity we tend to put them higher up because we have traditional per event, we have a lot of alternative capacity per event, and we have a number of aggregate covers.”

“A lot of our aggregate covers are collateralised reinsurance,” he explains. “The guys doing collateralised reinsurance were more keen to do aggregate than the traditional, so they started to do aggregate before so we went to them because we wanted sideways covers.”

“In 2000 we brought the alternative cover, cat bonds in particular and a lot of those cat bonds at the beginning they were per events and gradually they have migrated to aggregate,” he continues. “We still don’t do indemnity cat bonds because there is no market for retrocession cat bonds on an indemnity basis. They are parametric but they are aggregate. And then we introduced aggregate covers on collateralised five years ago, so its a combination of the traditional, cat bonds and collateralised reinsurance.”

Read all of Artemis’ Monte Carlo Rendez-vous coverage here.