French reinsurance company SCOR “kicked itself” for not having renewed its mortality catastrophe bonds in the past, the firms new CEO Laurent Rousseau explained today.
Laurent Rousseau was speaking during a virtual event organised by the organisers of the Rendez-Vous de Septembre (RVS) today, in which he discussed the pandemic and how it has affected the global reinsurance industry.
Asked about the insurance-linked securities (ILS) market and also for his views on pandemic bonds, so catastrophe bonds that can specifically bring capital markets backed reinsurance capacity to pay claims related to future pandemics, Rousseau gave some insights into how the new CEO of SCOR thinks about ILS and cat bonds.
“SCOR had issued an extreme mortality bond a few years ago and and we did not renew it when it matured,” Rousseau said.
Adding that, “We kicked ourselves for that, as you can imagine.”
That may well be a reference to the fact that it an in-force mortality cat bond would have been an extra layer of retrocessional protection for SCOR through the ongoing pandemic.
He went on to discuss the potential for the capital markets to support the future pandemic risk capital needs of the global economy, saying that he definitely sees a role for ILS, but at the right time.
He explained that, “Intuitively and intellectually, yes I would imagine there is a great future for ILS, yes there is a great future for ILS beyond property cat, and yes, there should be ILS for pandemic bonds.
“Now, how do you price it, how do you structure it, do you make it parametric versus indemnity. The devil is in the details. So what’s the future of pandemic bonds?
“Interestingly we saw a few of our clients and competitors going into COVID covers. I don’t understand how they can bring value to clients and if they bring value to clients, I do not understand how they can be sustainable for their providers.
“So I think it’s important to test and learn to try to bring solutions. But it’s important not to do silly things either when, when you know when I in a P&C language would you issue a cat bond when you still have the the wind over Miami?
“We haven’t seen that. So I think you should wait a little bit on the life side as well.”
Which makes perfect sense. Issuing a pandemic bond right now would be challenging.
It was the first ILS issuance to cover deaths from the COVID pandemic, but only from the beginning of 2022. But this shows there is appetite and also potential, should reinsurance firms like SCOR want to secure a level of retrocessional funding to cover potential future spikes in pandemic mortality, including from COVID.
Rousseau went on to provide some insights into his views on the ILS market at this time.
Referring to the SCOR Investment Partners ILS operations, he noted that SCOR itself has a large ILS fund, which began as a catastrophe bond strategy.
Rousseau said, “The cat bond market has been doing very, very well, so I think here there is maybe a further education and progress here.”
But added that, “The collateralized re market has, not collapsed, but really taken a hit.”
He then made a comment that suggests Rousseau’s view of ILS is that the industry needs to continue to evolve over the coming years and that he expects it to do so.
As he said, “For me, the way we see the ILS market is not a good guide to the future.
“I really see the future as different and we should not be prisoners of the past.”
We’d agree with Rousseau, that the ILS market we see today is unlikely to look the same as how capital market investors access insurance and reinsurance-linked returns in the future.
There’s a lot of work needed to evolve the ILS sector, not least in increasing the liquidity and tradability of ILS contracts and risks.
But, over-time, we’d agree that being stuck in the past will not get the use of capital market funding in reinsurance to where it really should be in the future.