DAY 1
Powered by: PCI TSundOay OctoDber 15A, 2017Y
Insurers that resist change
will be consigned to past
as industry reinvents itself
The insurance industry is going through
David Sampson
an unparalleled period of change at
an unprecedented pace and chief executives
unwilling or unable to embrace this rapid
development in their markets may not find
themselves in their role for long. They must
embrace change or get left behind.
That is the view of David Sampson, president
and chief executive of the Property Casualty
Insurers Association of America (PCI), speaking
ahead of the trade body’s annual event to being
held this year in Chicago.
He said the conference’s title, ‘The Future of
Insurance’, and entire event programme has been
developed to reflect this challenge the industry is
facing. He stressed that it is an exciting time for
insurers but they must be willing to keep pace
with developments.
“The pace of change is unprecedented.
There has always been change but it used to take
decades for new technology or social changes to
take root.
“Everything is now accelerated leading to
disruption that is cross-cutting many segments
of society and on a global basis,” Sampson said.
(Continued top of page 2)
NEWS ALERT
Lack of new equity cash
and trapped capital could
mean bigger rate rises
Rates in property-catastrophe reinsurance are
likely to increase more than many believe in
the aftermath of big hurricane losses because of
the low level of equity raising and the emergence
of trapped capital as a major issue.
That is the view of Michael Millette, managing
partner of HSCM Bermuda (Hudson Structured
Capital Management), the ILS, reinsurance and
transportation finance investment manager set up by
the former structured finance head of Goldman Sachs.
Millette told PCI Today that the money entering
the industry has been low in comparison to previous
big losses. In the aftermath of Hurricane Katrina in
2005, which caused $82 billion in insured losses, for
example, some $30 billion of new money entered
the industry through a mixture of new companies
and existing entities. In the aftermath of 9/11 in
2001, a similar amount entered.
While new money is entering the industry
through funds, sidecars and other forms of
risk transfer vehicles, Millette stressed that it is
nowhere near the amount needed to dampen
price hikes on certain lines of business hit by big
losses. (Continued top of page 4)
Fight for rate hikes or ‘get out of reinsurance’
Retrocessional rates must increase in the
aftermath of big losses from the recent
hurricanes and underwriters lacking the will to
fight for hikes should get out of the business.
That is what Glenn Clinton, managing director,
ILS Capital Management, told PCI Today. He
believes that seasoned underwriters in reinsurers,
who have witnessed big losses and the market cycle
before, will be willing to hold firm and push for rate
increases. Newcomers to the market, perhaps less
experienced in the aftermath of big catastrophes,
might be less confident in their offering and so less
likely to hold the line.
“If you don’t have the will to stand firm
on increases, now is the time to get out of the
business. We are the backstop and after five
straight years of rate decreases, a year like this
should clearly show why cedants need to pay
more,” Clinton said.
“I know most of the underwriters in the
established reinsurers well and I know they are
optimistic—under pressure even—of achieving
better rates now. Some of the people in the ILS
space, in contrast, I have never met before. I am
less optimistic they will understand the importance
of driving rate increases, but I hope I am wrong.”
Clinton said he believes that more
sophisticated buyers will understand the dynamic
of the reinsurance market in the aftermath of a
big loss and will accept rate increases.
“They will understand the importance of their
backstop,” he said. “They need us as we need
them—it is a symbiotic relationship. In terms of
that relationship, it is my turn now and if someone
cannot understand that I need more rate, and a
tightening of some of the terms and conditions in
the contract, then we will not be doing business.
“If I am not that important to them they can
work with someone else.”
He added that it is not simply a case of
rates increasing on the same structure as
before, however. (Continued bottom of page 2)
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DAY 1: Sunday October 15 2017 | PCI TODAY | 1