Specialty lines ‘the next frontier’ for ILS
As insurance-linked securities (ILS) become
increasingly attractive to investors, there is
an opportunity to support both emerging and
existing lines of business if the right product is
in place, Michael Krefta, CEO of Hiscox Re &
ILS, told Monte Carlo Today.
“ILS in general has now penetrated the
marketplace to a lesser or greater extent,
depending on the geography and the product,”
“There has been huge penetration into
the property-catastrophe space, but the next
frontier for ILS is to find solutions for insurance
and specialty products.”
This week Hiscox has soft-launched a new
flood product, FloodXtra, which uses remote
sensing, location level data, and topography
data to work out the probability of a flood
occurring in any individual postcode.
“The link back to ILS is that we have the
opportunity to increasingly deploy those types
of products against an ILS base,” Krefta said.
“It’s exciting for growing ILS funds and
helps allow our clients to help fill the insurance
gap. The takeaway for me from these last
two hurricanes is just how underinsured even
For growth in this area to continue, Krefta
stressed the importance of a product providing
the right pricing as well as protection.
“At the moment I don’t think the market
has this. The National Flood Insurance
Program (NFIP) has proved it is very challenging
to price individual flood risk,” he said.
“By using the latest technology in products
to create a marketplace, ILS will follow. We
think too much about capacity before we’ve
thought about the product.”
Citing recent flood events in the US,
and earthquake risk in California or Japan,
Krefta believes these areas are “chronically
underinsured”, not because there is a lack of
interest or capital behind those things, but
purely because the product isn’t fit for purpose.
“The question is how we make the
products more beneficial to clients. How do
we ensure better insurance penetration by
leveraging what is a burgeoning reinsurance
marketplace? Then you work out how you sell
that and what capital you use to underpin it,”
he concluded. n
Harvey and Irma unlikely to change structure of resilient market
Large losses such as those from hurricanes
Harvey and Irma are unlikely to have
an impact on the dynamic or structure of
the reinsurance market, Andrew Newman,
president and global head of casualty at Willis
Re, told Monte Carlo Today.
“Even at its peak, this was a modelled loss.
The big and stable reinsurers will have provisions
for something like this happening,” Newman
said. “I don’t think either event is so big as to
cause real harm to the structure of the market.”
Newman suggests that select classes of
business—particularly in North America—will
probably see an end to some price reductions,
but there will be only technical adjustments
and he does not forecast any supply-demand
imbalance leading to a classic hard market.
The question that Newman believes will
be answered over the next couple of days will
be whether the price correction spills over into
other classes of business and other territories.
“It’s still hard to know the full extent of the
damage in Florida,” he said, “but my suggestion
is that it is unlikely to.”
He suggested that the losses are not big
enough to have any real capital impact across
the industry, and that clients have a lot of
choice from a lot of capacity, which will also
keep prices low.
“This relates to the structural changes in
the industry, where there was a lot of capital
sitting outside the market. Whether it comes in
or doesn’t, it’s poised to come in at quite low
price change points,” he said.
“There is capital that will come into the
market; it might only need a 10 to 15 percent
price adjustment. When that happens, the
supply-demand dynamic changes and clients
have options. That acts as a suppressant to the
direction of the market.”
Overall, Newman believes, over the last
five years reinsurance has been an extremely
valuable financing technique. The losses
in Florida will again show how reinsurers
step up and pay claims efficiently—a great
advertisement for the industry.
“The fact that pricing has gone down is not
simply a reflection of the change of values, it’s
also a function of improved modelling, risk
management, engineering, and 10 years of
having no major catastrophes,” he concluded. n
10 | MONTE CARLO TODAY | DAY 4: Wednesday September 13 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com