Rate hikes unlikely: Caribbean cat facility
Notwithstanding the nat cat events of
2017, the Caribbean Catastrophe Risk
Insurance Facility (CCRIF) is confident that its
balance sheet is adequately set up to absorb the
risk of high payouts in years of multiple extreme
events, Isaac Anthony, CEO of CCRIF, told
“Even with the claims paid thus far in 2017
we have substantial reinsurance coverage in
place in the event that we have to pay additional
claims in this policy year,” Anthony said. “It is an
extremely remote possibility that CCRIF would
exhaust its reinsurance coverage and reserves.”
He added that at this time, the main
strategic focus is bringing together stakeholders
to support the expansion of CCRIF so that
its members are able to purchase additional
coverage at affordable rates.
CCRIF was formed in 2007 as the first
multi-country risk pool in the world and
developed parametric policies backed by both
traditional and capital markets. The facility
offers earthquake, tropical cyclone and excess
rainfall policies to Caribbean and Central
CCRIF maintains long-term relationships
with more than a dozen reinsurance firms, under
an excess of loss protection that allows it, together
with its capital base, to make good on claims with
a return period of one in 1,000 years. CCRIF’s
reinsurance cover allows it to recover up to $175
million on top of its retention for the Caribbean
tropical cyclone (TC) and earthquake (EQ)
segregated portfolio, and the facility also purchases
reinsurance for the smaller segregated portfolios
(excess rainfall and Central America) to allow for a
strong survivability and solvency position.
In light of the recent nat cat events, CCRIF
foresees a likelihood that rates could increase.
“The 2017 Mexico earthquakes combined
with TCs Harvey, Irma and Maria have
resulted in high claims on reinsurance. We note
that many reinsurers are looking at this year’s
events as having more of an impact on earnings
rather than capital, and at this time we have
not seen any rating downgrades,” said CCRIF
chief operations officer Gillian Golah.
“Many reinsurers also have capital
management strategies that allow them to
absorb shocks like this.
“CCRIF is unlikely to see the increases that
other insurance companies may face given the
nature of our business. Also, CCRIF retains a
portion of the risk so that we are not completely
reliant on the traditional reinsurance market,”
Golah added that CCRIF has the reputation
and credibility and is well positioned to engage
the support of donors and other developmental
agencies to put strategies in place to ensure
that its members are not completely exposed
to unwarranted or unaffordable price increases.
CCRIF has participated in the ILS market
in the past, sponsored by the World Bank, and
plans to explore this again.
“We believe that this way of accessing
alternative capital as an additional source of
risk transfer is efficient and desirable. Once we
finalise updating our main catastrophe models
for TC and EQ, this source of capital will be
explored again,” said Anthony. n
P&C execs bullish on pricing following record cat losses
After record catastrophe losses in the third
quarter, P&C executives are more bullish
on pricing, according to an October 24 research
note by Morgan Stanley.
Morgan Stanley estimates 1 to 5 percent rate
increases could lift earnings by approximately 6
to 29 percent on average.
A brighter pricing outlook should drive better
investor sentiment on the group, which is yet to
be fully discounted in the stocks, stated the report.
It said that following approximately $100 billion
industry losses from hurricanes Harvey, Irma and
Maria, two powerful earthquakes in Mexico, and
the Californian wildfires, P&C re/insurers are
more vocal on the need for improving pricing.
“On the 3Q earnings call, Travelers’
management set a bullish tone on commercial
P&C pricing given the record losses, higher
risk perceptions, and years of deteriorating
fundamentals in declining pricing and
investment yields. Their views are shared by an
increasing list of companies,” the report said.
Morgan Stanley expects double-digit
property cat reinsurance pricing increases
and more gradual improvement in primary
property insurance, according to the report.
Regarding the potential earnings impact,
Morgan Stanley’s scenario analysis indicates
that 1 to 5 percent overall pricing increases could
improve core combined ratios by 1 to 5 points,
which could lift earnings by approximately 6 to
29 percent on average for the companies covered
by Morgan Stanley, all else being equal.
“Companies with larger property cat
reinsurance exposures (AXIS, Everest Re,
RenaissanceRe, and XL Group) could see
higher overall pricing and greater earnings
benefits,” it stated.
The report acknowledges that a brighter
pricing outlook will take time to translate
into earnings and could be offset by higher
catastrophe loss assumptions. However, an
improving pricing outlook should drive investor
sentiment on the group, it said.
Morgan Stanley notes P&C brokers are also
beneficiaries of higher pricing, which supports
better organic growth.
Historically, P&C stocks tend to underperform
immediately after major events but subsequently
outperform as losses become certain/manageable
and investors’ focus shifts to improving pricing.
Since pre-Harvey, the price-to-book multiples
on companies covered by Morgan Stanley have
expanded by approximately 4 percent on average,
reflecting higher earnings per share and return on
“The higher multiples are yet to fully reflect
more bullish outlook on pricing, in our view,”
the analysts wrote. “We think the rising pricing
tide could lift all P&C boats.” n
20 | BADEN-BADEN TODAY | DAY 3: Wednesday October 25 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com