TUESDAY
News 17.10.17
ILS capacity demystified for US cedants
Most US cedants increasingly see using
very sophisticated in their understanding of
collateralised capacity and the choice this can
offer cedants.
“From a broker’s perspective they understand
that they need to offer their clients a full choice
of options and that now includes ILS capacity,”
she said.
“They have a professional obligation to
explore the whole market for their clients—
maybe there is a step further to go in terms of
education but it allows them to offer their clients
a different source of capital.”
She said some brokers in Europe question why
they need to offer ILS capital to clients as they
“have plenty of choice already”. But, she said:
“That choice was only traditional reinsurance so
that is not really offering clients the full spectrum
of what is available,” adding that such a mentality
is now rare in the US in particular.
In terms of rates moving into the 1/1 renewal,
Kath said that it is too early to say whether increases
will eventuate in the aftermath of the hurricane
losses. She said many investors are waiting in the
wings, ready to move if improvements happen.
“We could know more after PCI,” she said.
“We usually see more concrete submissions after
this event so we will see. At the moment talk of
rate increases is speculative and potentially just
wishful thinking.” n
collateralised capacity as a mainstream
option complementing their traditional reinsurance
programmes—but education is still needed to help
demystify the process for some carriers.
That is the view of Jutta Kath, chief operating
officer of Secquaero Advisers, the fund manager
50.1 percent-owned by Schroders and its
exclusive advisor on insurance-linked securities
(ILS) investment strategies.
Kath said she spends a large amount of time
with US cedants at PCI—some existing clients
of Secquaero, others potential clients. She
said that the use of ILS structures is far more
mainstream than it once was although there
remains an extra level of questions that she
helps educate them on.
“The psychology has changed although there
is still something of an education process we go
through,” Kath told PCI Today. “It is not complex,
it just needs demystifying. The only difference
between what we offer versus traditional
reinsurers is that their capital is permanent and
ours is temporary. As such, we use a trust fund to
hold collateral.
“We sometimes have discussions on the trust
fund and how that works but the nature of the
reinsurance treaty is still the same. Sometimes
traditional carriers like to question the ILS
Jutta Kath
market’s mentality when it comes to paying
claims, but that is inaccurate.
“The cedant has access to the fund—if there
is proof of loss the money is there for them very
quickly.”
Kath added that the role of the broker is
essential in the relationship with cedants and
she notes that US brokers in particular are now
2017 insured losses could total $100 billion: RMS
Total losses from recent natural catastrophes
could hit $100 billion and the industry needs
to look at its exposures and learn lessons to help
it manage its risks better, John Kapitan, head of
Americas client development at RMS, told PCI Today.
“All the recent events could add up to a $100
billion insured loss year, which for the industry is
significant,” said Kapitan. “That highlights the
need to have effective risk management and to be
thinking about all the different events that could
happen in a year.
“If Irma had moved and taken a different
track then we could have been talking about a
$150 billion or a $175 billion loss year. Companies
without highly effective risk management could
be in distress at that point.
“We are hearing more about the wildfires
in California. That could become a significant
loss—we’re estimating $3 to $6 billion, but it is
evolving.”
Kapitan said it is important for companies
to understand their exposures and the coverage
they are providing. They need a plan in place to
address what happens if, as seen in 2017, multiple
events happen. They need to understand what
their overall aggregate loss could be.
According to Kapitan, the industry has made
significant recent improvements in exposure
management but he stressed that there was
always room for more improvement, especially
given the wide range of events the market has
seen in 2017. n
John Kapitan
6 | PCI TODAY | DAY 3: Tuesday October 17 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com