Irma, Harvey risks not reflected in price
Despite the fact that scenarios similar to
hurricanes Irma and Harvey had been
included in underlying models, prices have not
reflected the risk—and this must now change,
Umberto Gavazzi, SCOR’s chief underwriting
officer, treaty P&C, told Monte Carlo Today.
Events such as Irma were included in
models, “but the model is one thing, the other
is what you find in the market”.
“Large loss events such as Irma and Harvey
cannot go down unnoticed. The market has to
react,” Gavazzi said.
As Irma approached Florida, cedants were
hastily looking for back-up coverage, thinking that
they may have underwritten too much risk in that
part of the world and could be left exposed.
“When a perfectly modelled hurricane
causes such a reaction, there is an issue in the
market,” Gavazzi said. “I hope this will serve as
a lesson,” he noted.
Reinsurers have been warning for some
time that the rates in property/casualty were
not sustainable. Market observers are pointing
to the fact that the profitability of reinsurers is
also falling below the cost of capital.
“The intrinsic profitability of the industry,
once you have outstripped the reserve releases
and normalised for an average cat loss burden,
is not good enough to attract fresh capital,
unless the market re-adjusts its pricing following
the events,” he noted.
After the hurricanes, SCOR plans to push
harder to achieve higher prices in the nat cat
P&C market. Gavazzi believes that after the
expected large losses from the hurricanes, the
environment will be more conducive to rate
The French reinsurer still wants to grow
in the US market as it aims to catch up with
the two global market leaders: Munich Re and
Swiss Re. SCOR wants to rebalance its book,
which is strong in Europe and Asia but less so
in the US.
Gavazzi believes that it is a good moment
for SCOR to expand, after having received a
rating upgrade from AM Best.
“Much more business becomes accessible
for us,” Gavazzi noted. Market participants
see too much concentration in the reinsurance
market and are increasingly finding SCOR
to be an alternative, he said. More business is
becoming available to SCOR through brokers
than before, he added.
Gavazzi sees growth opportunities for
SCOR particularly in long-tail casualty lines.
“We are setting up new teams in Europe to
boost our capacity in casualty and of course in
the US,” he concluded. n
Transparency is needed to prevent brokers ‘double-dipping’
Over the next 12 months, regulators
will be seeking more transparency on
how brokers are remunerated amid concerns
around the practice of “double-dipping” on
commission, Mike Papworth, head of Asia and
head of property/casualty at Miller Insurance
Services, told Monte Carlo Today.
“As a specialist reinsurance
broker, my client is unequivocally
the insurance company.”
This refers to a scenario where a broker may
receive commission on a placement multiple
times, either because it is involved in placing
both the insurance and the reinsurance risk or
because it is collecting a fee from both the client
and the company it has placed the business with.
Papworth believes this practice has evolved
because margins have tightened in the last two
or three years, and the practice is also becoming
more common as brokers are trying to squeeze
more out of transactions.
“This is one of the areas we hope the
regulator steps in on during the next 12 months.
Not only are they double or triple-dipping on
commission, but there is also conflict as to who
their actual client is,” said Papworth.
A broker carrying out the insurance placement
of a big industrial risk, for example, might
also make it compulsory that the insurer buys
reinsurance from them as well. This would be one
example of a broker taking a double commission.
And this creates conflict, suggested
Papworth, as it shows a lack of transparency
that is not in the best interest of the client.
It also creates issues from the regulator’s
perspective, which might view it as a broker
serving two clients under the same transaction.
“We’re challenging that, and would certainly
like some transparency as to who the client is,”
he said. “Is it the insured, or the cedant? And it
cannot be both. It’s quite a regular practice, but
to me there is a conflict.”
Papworth is an advocate of making it clear
who a broker is representing at any one time.
He said this is the case in transactions he acts
on—there is never ambiguity.
He continued: “As a specialist reinsurance
broker, my client is unequivocally the insurance
company. I will provide financial services and
tools to protect and insurance company’s
balance sheet.” n
6 | MONTE CARLO TODAY | DAY 4: Wednesday September 13 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com