CCR Re navigates climate change risk with bold strategy

“Climate risk modelling has changed the way we do things, from underwriting to pricing, and it’s crucial to be forward-looking rather than rely solely on past events,” said Laurent Montador, deputy chief executive officer of CCR Re, discussing the evolving nature of weather patterns.

“There are some areas where we simply choose not to write business, even if prices have gone up. The risks are too great, and we have to protect our portfolio,” he said. 

CCR Re is navigating the turbulent waters of climate change, inflation, and geopolitical instability by focusing on a balanced portfolio and robust pricing mechanisms. 

According to Montador, the company has adjusted its strategy, with climate change taking centre-stage.

“Balancing the portfolio is key,” he said. “We’ve recognised the need for a pricing reset in certain areas: this hasn’t been addressed for a long time, and the market is now calling for it.”

To address climate risks, Montador explains that CCR Re has incorporated sophisticated methods into its underwriting and risk assessment, bringing in experts to ensure a deeper understanding of how weather patterns have shifted, and applying these insights directly to underwriting decisions.

“We recruited meteorologists to show underwriters how much the risk has increased compared to previous years,” Montador explained. 

“It’s crucial not to base our decisions on past events alone; the world has changed, and so has the level of risk we’re facing.”

This approach involves identifying regions where the risk is too high to justify coverage.

“The ability to work with Big Data quickly, thanks to AI and cloud scalable ecosystems, is the new game-changer.” 

Tough decisions for a better future

“There are zones where we prefer not to go, even with higher prices, especially where no mitigation has taken place” Montador said. “It’s just too difficult to insure, and we have to make those tough decisions.”

When it comes to technology, CCR Re is harnessing artificial intelligence (AI) and data analytics to refine its processes, although Montador is clear that these tools assist human decision-making rather than replace it.

“We’ve used data analytics for decades, but the ability to work with Big Data quickly, thanks to AI and cloud scalable ecosystems, is the new game-changer,” he said.

“For us, AI is also particularly useful in natural language processing, which has improved operational efficiency and knowledge management.”

Montador detailed how CCR Re has leveraged AI to scan and analyse vast amounts of unstructured data, particularly in policy wording and loss events. 

This, he said, has been especially useful during complex scenarios such as the COVID-19 pandemic and cyber incidents, helping the company forecast potential losses and improve response time.

“AI helps us treat data more quickly, but it’s important to note that decisions are still made by humans with additional robust and pragmatic approaches,” he emphasised. 

“It’s about using technology to speed up processes and present better information, but we still rely on people and face-to-face meetings with clients.”

As Baden-Baden gets underway, Montador reflected on key trends in the European reinsurance market, particularly around pricing discipline. 

Despite talks of softening in property-catastrophe lines, he stressed the need for continued rigour.

“A year or two of positive results will not erase a decade of low profitability and losses,” Montador noted. 

“We need to maintain pricing discipline, as the situation is much more uncertain now. We’ve seen secondary perils crop up again, and this should drive the market towards collective discipline and understanding.”

In terms of emerging risks, Montador expressed caution regarding cyber insurance, saying: “There’s still a lot of heterogeneity in the cyber market.

“The event definitions vary from policy to policy, and the accumulation risk is hard to manage. The market isn’t mature yet.”

CCR Re supports its clients transitioning from silent to explicit cyber coverage,  although Montador noted that this remained complex.

“The industry still needs to invent solutions for these emerging risks,” he explained. 

“It’s clear from COVID-19 and supply chain disruptions that we’re not there yet. Private markets can offer some solutions, but state intervention is likely to be necessary.”

Capital management is a priority for CCR Re as it looks toward the future, Montador said.

“We’re always looking for ways to optimise our capital. We’ve created a sidecar on property-catastrophe risk, issued hybrid debt to increase our capital base and studied risk pockets that consume too much capital. 

“It’s all about focusing our capital where it’s most needed for next year’s renewals, and we are ready for that” he concluded. 

Laurent Montador is deputy chief executive officer of CCR Re. He can be contacted at: lmontador@ccr-re.fr 

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