14 News
Belt and Road’s opportunities
As investments into China’s Belt and
Road Initiative (BRI) increase, Kirill
Savrassov, CEO of Phoenix CRetro
Reinsurance Company, told Baden-Baden
Today that it represents big opportunities
and challenges for the reinsurance industry,
especially from a cat perspective.
He said the project, led by China and
sometimes described as a multibillion
dollar rebirth of the Silk Road, offers a
key opportunity in exponential demand in
additional cat capacity from local BRI transit
markets.
However, he flagged potential challenges,
saying: “I would note state ownership
of critical infrastructure, low insurance
penetration—below 2 or even 1.5 percent—
with general underdevelopment of local
markets in BRI transit countries, and existing
and potential protectionism in re/insurance.”
With the Chinese’s government’s direct
responsibility for BRI comes a lack of
insurable interest, Savrassov said.
“One other challenge is contingent
business interruption for the transport
corridors. Do not forget that after leaving
mainland China on the way to Europe several
key transport corridors pass through one
of the most earthquake-exposed areas of
Eurasia, if not the world.
“Even a mid-sized event in say Kazakhstan
or Uzbekistan would have devastating
consequences for the entire BRI project. Fast
and effective access to post-disaster relief
funds is of strategic importance for all.”
Asked which insurance models would
be viable for BRI he said: “Representing the
insurance-linked securities (ILS) industry and
having studied the needs and challenges in
the BRI transit regions, I would say that the
transfer of cat risks to private capital markets
in the form of parametric sovereign or subsovereign
cat bonds seems to be the best
option.
“Learning lessons from other parts of the
world with success stories in the Caribbean,
Latin America and Africa and recent
endeavours in Asia for the development of
the ILS sector, in Singapore for example, such
a solution can be achieved in a very effective
manner.”
He added that some regional differences
mean that other risk finance alternatives such
as sovereign schemes or contingent credit
arrangements look like a distant prospect at
the moment.
“At the same time if any country issued say
Eurobonds in the past, it is legally ready to
replicate it with cat bonds straight away, with
no major changes in legislation required.” l
Will the FAANG giants come after reinsurance?
Google, Facebook and Amazon could
become significant players in the
re/insurance business of the future,
according to Johannes Martin Hartmann,
chairman of the board at VIG Re.
He said the Silicon Valley giants such as
Facebook, Amazon, Apple, Netflix and Google—
the FAANGs—will not become insurance
companies themselves, but they could still
become very influential in the business by coming
in to take certain parts of the value chain.
If they get involved in the re/insurance
market they will likely focus exclusively on
the B2C side, and leave the B2B side of the
business alone, Hartmann predicted.
He expects technology giants to partner
with reinsurers, rather than competing with
them head on, in order to avoid the regulatory
burden that reinsurance providers take on.
“But that will still allow them to control a
chunk of the business,” he said.
However, he added, smaller insurtechs
would find it harder to establish themselves
in the industry.
Kirill Savrassov
“There are a lot of clever ideas we can use,”
he said. “The best ones will be acquired by re/
insurers.”
Some of these clever ideas are already
having an impact on the business, as re/
insurers acquire fintechs, use their ideas
as inspiration for their own product
development, or forge partnerships.
The impact is particularly significant in
personal lines, said Andy Hottinger, president
of EMEA and LatAm at AXIS Re. Re/insurers
are having to invest heavily to stay competitive
in this business, he said.
“Where technology allows re/insurers to
process large amounts of data it can improve
our ability to predict behaviour, and the better
we are at this the more stable our results will
be,” said Hottinger.
“Ultimately it could allow re/insurers
to sort insureds according to their risk,
and create more stable and more volatile
portfolios, with different pricing for each. But
there is no sign of that happening yet.”
More broadly, Graham Coutts, EMEA head
of reinsurance at Fitch Ratings, warned there
is considerable uncertainty about whether
the efficiencies and cost-savings promised by
insurtech can actually be achieved.
For this reason, companies are proceeding
cautiously, he said. l
Johannes Martin Hartmann
Baden-Baden Today Day 3 Wednesday October 23 2019