How can new reinsurers weather the current storms?

It is one thing to weather a storm when you have been in business for a century, but the situation is different when the firm you work for was founded only in 2017. That is the position that the brains trust at  CCR Re have found themselves in over the last 18 months.

Speaking on the Re/insurance Lounge, Intelligent Insurer’s on-demand platform for interviews and panel discussions with industry leaders, Laurent Montador and Hervé Nessi, respectively the company’s deputy chief executive officer and its chief underwriting officer, spoke about the challenges of 2020 and 2021.

“2020 was difficult because of COVID-19, and even if 2021 began well, the summer was complicated. We’ve had to face an exceptional number of claims from uncontrolled fires, extreme weather, storms, and floods in Germany,” said Nessi.

“All these experiences have given rise to a rethinking about our industry, and to ask whether the year was an anomaly or whether we are looking at a future where multiple events occur at the same time. Will this become the norm from climate change ?” he asked.

It was then Montador’s turn to speak, the two men being interviewed over Webex from separate buildings. Even with SARS-CoV-2 vaccinations available, CCR Re is still taking some precautions.

“The vaccine is here,” said Montador, “and we are all vaccinated. We’ve become used to the travel restrictions, which have been in place for nearly two years, and the situation of working via Zoom and Webex.”

More than just teleconferencing, the virus has changed how the company operates outside its four walls. “We have senior people on the commercial side who have strong networks of clients,” said Montador. “But for new people and new clients, we have needed to find ways to break the ice on the relationship. What we’ve been trying to do is invent new ways of doing it remotely—sending out bottles of French wine or champagne, for example.”

Future risks

Nessi said the COVID-19 pandemic has brought some good. A globalised world means that this pandemic will not be the last, and another one could arrive at any time.

“This has led insurers to look increasingly to the implications for the industry. Every player—broker, insurer, reinsurer—has done in-depth work on policies and clauses around another pandemic. I’m now quite comfortable with a potential pandemic because everyone knows we need to find more solutions in order to capture this systemic risk,” he explained.

Climate change is another risk in a shifting world. Extreme weather events will have an undeniable and unavoidable impact on the industry. These events will often occur in limited geographical spaces, and will push at the limits of what insurers can do.

“One issue is the sum insured concentration. We all know that the sum insured increases each year. Normally, it’s positive for the industry. However, these risks are located in one location more and more,” said Nessi.

“This is causing major challenges for insurers and reinsurers. Some insurers have withdrawn from places such as Florida due to having too much exposure in the same place.”

While the challenges are there, the solutions are within touching distance.

“All the players have to come together for viable solutions to these problems. One would be to demand a higher level of risk prevention where the risks are too concentrated. Another would be to promote a geographical spread distribution,” Nessi explained.

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Economics and collaboration

Away from natural disasters and pandemics, talk turned to the economics of the market. Nessi said that improvements on the liability side were driven in 2020 by sustained low interest rates and legal threats on the reserves.

“That’s an improvement we hope to see again this year. At the same time, on the cat side, we’re facing a misunderstanding about the increase in rates, as often happens after a big disaster such as the flooding in Germany,” he said.

“After big cat claims, the reinsurers expect rises not only in the areas that have been hit by the claims but everywhere around the globe. Our clients have to remember that they are part of a worldwide ‘mutuality’ and they’re all members of an international group of solidarity. Their premiums pay the claims of others, and vice versa.”

Montador spoke about potential collaboration between the industry and the people it serves, and how alliances and working relationships could be formed.

“There are some areas where the reinsurance and insurance markets could work to help communities in mitigating risk. But we cannot cover everything.

“In that respect, communication mistakes have been made towards governments and it’s important for the economy and especially our industry to keep our clients alive. Central banks have played a major role for that. It’s important to know what the industry can and cannot do, and to be able to communicate that to the public and to governments,” he concluded.

To view the full Re/insurance Lounge session click here

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

Hervé Nessi is chief underwriting officer of CCR Re. He can be contacted at: hnessi@ccr-re.fr