Property Claim Services (PCS), a division of Verisk and the leading source of data on insured property losses from catastrophes in the U.S. and Canada, has a desire to expand its industry loss data reporting services. PCS is looking at international expansion options for its catastrophe data services as well as marine & energy as a new line of business.
PCS data on insurance industry losses from catastrophe events in the U.S. and Canada is used heavily by the reinsurance and insurance-linked securities markets, particularly in catastrophe bonds and industry loss triggered contracts. PCS reporting features as the arbiter of whether a trigger event has occurred in many reinsurance contracts, industry loss warranties (ILWs) and catastrophe bond transactions.
These data reporting services are important to the market as they facilitate risk transfer based on expected industry losses, rather than indemnity or actual paid claims. This can suit certain companies better than an indemnity transaction, is more suited to retrocessional reinsurance protections and allows risks to be hedged in slightly different ways to traditional indemnity. It is also an accepted mechanism of measuring losses which the capital market investors often involved in ILS, cat bonds and collateralized reinsurance have grown accustomed to.
In a recent blog post, Joe Louwagie, assistant vice president at PCS who we interviewed recently here, said that the firm is increasingly seeing demand from the ILS market for broader coverage from their data reporting services. New regions and new lines of business are required to help the ILS market grow further and PCS says that it is happy to facilitate this if the market gets behind such initiatives.
Industry loss data and indices are perhaps more suited to many other regions of the world, where post-event indemnity reporting could contain a deal more moral hazard than in the U.S. As well as this, by making industry loss data collection and aggregation services available in new regions, the local insurers would benefit from consistent catastrophe designation and a new resource for benchmarking claims payments and assisting with loss reserving.
In his blog post, Louwagie discusses regional catastrophe indices as a way to facilitate reinsurance transactions, catastrophe bonds, retrocession and further grow access to the capital markets for local insurance markets. This could be an enormous benefit to the existing ILS investment market, enabling rapid growth, access to new diversifying perils, encouraging more capital into the market and bringing new regional investors on board with the raised profile of ILS.
Louwagie said; “In fact, the adoption of a regional index would be the first step in opening the capital markets, providing an independent standard for executing transactions. As the local insurance industry accumulates experience with the capital markets, it will gain access to a wider range of alternatives, including indemnity-triggered deals. The index, however, is the first step.”
It’s not just new regions that PCS is turning its energies to, the firm would also like to cover additional lines of business outside of catastrophe risk. Following extensive conversations with the market, PCS has found that there is significant demand for industry loss indices in the energy and marine sector, this could be a global index or perhaps regional based on ocean basins.
Louwagie told Artemis; “There are two factors we consider when exploring a new expansion opportunity. The first — and most important — is the impact it will have on our customer base. The second is whether PCS would be able to provide the high-quality, reliable service that we currently offer in the United States and Canada. In fact, our customer base is what drives our evaluation: We listen to the market actively and are interested in expansion where it serves our clients best. If our clients tell us they need something, we pay close attention.”
PCS believe the lack of such an index in energy and marine has hampered this markets growth potential. ILW transactions do occur in the energy and marine space but triggers often feature unorthodox reporting mechanisms and PCS would like to bring its rigorous data collection and reporting techniques to this space as well to help stimulate more capital market risk transfer transactions in the energy and marine space.
If PCS can successfully broaden the scope of its services it will help the insurance and reinsurance markets gain access to new forms of capital and new structuring tools from the capital markets and ILS. This will in turn help the ILS market to grow further and as such we’ll be watching any developments closely.
Efforts to grow the range of PCS industry loss data and indices products are already underway. Joe Louwagie commented; “When we feel that our clients want our support in a new market (be it international or a new line of business) and we have evaluated its consistency with our core mission and capabilities, we dig deeper. We’re involved in that process now with a number of opportunities, including international expansion. And we’re committed to working with our clients to make sure the steps we take align with their strategic needs.”