The reinsurance industry needs to get better at promoting the value of its catastrophe products to buyers, thinks Dominic Christian, Executive Chairman, Aon Benfield International. Property catastrophe reinsurance plays a vital societal role as well as generating significant premiums for the industry, he told Artemis ahead of the Rendez-Vous de Septembre in Monte Carlo.
“Generating cat demand is very important for many reasons. It’s a great product, far too much of that risk is held by governments and the public sector and, we’re very good at it.”
“We have seen some cat growth in the US, India and a bit in Japan this year,” he continues. “But we need to do a better job of selling increased cat elsewhere than we do and to encourage governments to look at our product more favourably, or at least use it more extensively than they are.”
“Cat, if correctly transacted and understood, provides an enormous amount of industry profit over time and it’s a very important driver of industry success.”
Closing the catastrophe protection gap offers a huge opportunity for growth, according to Christian. “You can make an argument that the world has never been so uninsured for risk, when we think about technology and cyber and so forth. I’m hoping at the conference we do a much better job of talking about how we combine our forces to generate more opportunity for the industry, and ourselves in it.
He thinks there will be the “usual tension” in renewal discussions between reinsurers and cedants, with reinsurers arguing that prices have reached the bottom of the cycle and need to go up.
“Have rates bottomed out? There has been some deceleration, but in a market without capital events for many years,” says Christian. “With lower but still profitable returns anticipated I feel very little real change in the trajectory. Yes prices decelerating in terms of their reduction, but for the most part actually still falling.”
He does not think this protracted soft cycle is comparable to those in the 1980s and 1990s, mainly because there is now pressure on both sides of the balance sheet and a wiser and more informed retrocession market.
“Then [in the 80s and 90s] you had very cheap retrocession available and a different climate for investment income,” explains Christian.
“And it’s very hard now to arbitrage your reinsurance portfolio in the retrocession market these days,” he continues. “It’s far more knowledgeable and there is a much more formulaic approach to understanding the risk.”
As a result, reinsurers will need to adapt. “They need to adapt because they’re going to require different skills to maximise the opportunity of understanding the risks we face today.”
“I think you’ll have two types of broker facilities – those that are strategic, usually of scale and very carefully thought through, facilities are essentially MGAs in the way that they’re operating. These are also long-term in nature and established on the collation of enormous amounts of data that wouldn’t have been possible ten years ago.”
“Then there are those that are frankly being put together just because they can be, because we’re in a marketplace that allows it at this stage of the cycle.”