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Industry’s future lies between traditional reinsurance & ILS: John Charman


The numerous challenges and hurdles facing global insurers and reinsurers suggests the market needs to evolve at a faster rate than it has historically, and the future of the industry lies somewhere between the traditional and alternative model, according to John Charman.

Speaking on a panel at the 2016 National Insurance Conference of Canada (NICC), Chairman and Chief Executive Officer (CEO) of Bermudian insurer and reinsurer Endurance Specialty Holdings Ltd., John Charman, highlighted a need for further innovation and evolution of the insurance and reinsurance marketplace to meet the evolving needs of countries, such as Canada.

“I think that my view for the future of our industry is we can’t stay as traditional insurers and reinsurers, we have to find a way of evolving much more quickly than we have done over the last 400 years,” said Charman.

Continuing to note that while he isn’t so sure the ILS space is the answer, it likely lies somewhere in between the traditional model and the alternative capital model.

Ever since alternative reinsurance capital really starting to get a foothold in the reinsurance space and contribute a meaningful and influential portion of total, global reinsurance capital, the lines between the traditional reinsurance sector and the capital markets have continued to blur, reflected in the expansion of the convergence space.

ILS capital is increasingly looking to access insurance and reinsurance linked business more directly, essentially jumping the risk value chain in the search for enhanced returns, diversification, and increased efficiency.

At same time, and further greying the lines between traditional and alternative reinsurance capital and features, the majority of global insurance and reinsurance companies now work with ILS in some form, whether this be through collateralised reinsurance, retrocessional business, catastrophe bonds, sidecars, and so on.

Charman also noted that a reason the immediate or end solution might not be ILS, but rather somewhere in the middle of ILS and traditional reinsurance, could relate to the long-standing relationships reinsurers have with cedents and potential implications surrounding contractual wordings.

“Not as a criticism,” said Charman, but in terms of coverage the alternative capital market “tends to be black or they tend to be white,” which could create problems that might not occur for more traditional players.

Charman explained; “Not every loss is a black and white loss, not every policy form is interpreted strictly within the words that are in it. You only have to go back through history and to see that there are losses that sometimes fall out of the contractual wording, and that’s where I think the traditional reinsurance marketplace and their traditional relationships with the ceding companies have always had an edge, and will always maintain an edge.”

“Because I believe that completeness of their relationship with their client base allows them to make decision that may be outside, in clear terms, their contractual obligations,” continued Charman.

Only in more recent times has ILS become an influential force within the insurance and reinsurance space, but as it continues to grow and look to access risks more directly, and becomes more accepted and as an asset class, it’s possible that these types of relationships can be established.

Only time will tell what the future holds for the reinsurance and ILS space, but it seems that capacity and features from all aspects of the convergence space will have a part to play in the transformation and continued evolution of the risk transfer market.

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