In an interview with Artemis at the 2017 Monte-Carlo Reinsurance Rendez-vous, Victor Peignet, Chief Executive Officer (CEO) of SCOR Global P&C, discussed the potential but uncertain impact of hurricane Irma on the softening market, and also what it might mean for the alternative reinsurance capital space.
Hurricane Irma followed fast on the heels of hurricane Harvey, and while it could take some time for the total economic and insured loss to be fully understood, Peignet told Artemis how recent events could drive a turn in the marketplace.
“We have been saying for the last two years that “maybe” you don’t need a capital event to turn the market. If we are right, this year’s hurricanes could be a turning point in the market, possibly not a radical change like a spike but a serious and responsible one that would withstand time.
“The value chain is so fragmented that it’s impossible to know who the ultimate risk bearers and loss payers are at the very end of the chain. Which is why it’s hard to predict how the market is going to react, because you don’t know which players are going to be really affected,” said Peignet.
It’s an interesting point, and highlights the broad uncertainty events like Irma bring to the global risk transfer industry, specifically as the storm hit a region where numerous primary insurers and traditional reinsurers operate and compete, as well as the flow of alternative reinsurance, or insurance-linked securities (ILS) capital.
“It will certainly be a test for the alternative market and the clients who are going to be facing two types of market: the traditional market they have already experienced and the alternative market, which they have never experienced,” continued Peignet.
As noted by the SCOR executive, the fragmented industry means just how impactful Irma is to the ILS space is unclear and it will likely remain that way for some time. While some catastrophe bonds are exposed to the region, it’s believed that forms of private ILS, such as collateralised reinsurance agreements, are likely the most exposed among the ILS world.
But again, it’s all uncertain and will become clearer as the aftermath of the storm continues to unfold.
Should the insured loss be sufficient to remove enough capacity to spark a turn in the marketplace, industry commentary has suggested that there’s more than enough ILS capacity sat on the sidelines, waiting to take advantage of any uptick in pricing.
Peignet, commented on this; “Money has been lined up ready to jump into the market and plug the gaps, but we’ll see what happens. Psychologically, there’s a big difference between taking the risk and suddenly seeing your capital go or the collateral you had to post be blocked.
“We don’t know how much the total cost will be, but we know how much we committed to and how we are protected, so we are lining everything up internally to make sure we’re ready to respond and support our clients.
“One of the problems is the length of time required for the actual loss to be quantified, which the market last experienced with Sandy that was a comparable event in nature (floods prone). Based on previous experiences, I’m sure that by the end of the year we’ll not be at the end of the process – and litigations would further complicate the process.”