Innovate to stay ahead of changing risks

Cyber, climate change and achieving sustainable rates will be the three main talking points at the Rendez-Vous, as innovation becomes increasingly important to the industry, as Laurent Montador of CCR told Monte Carlo Today.

Cyber risk, climate change and rates will be the three main topics of conversation at Monte Carlo—the first two having a growing bearing on the risks reinsurers are taking, and the importance of rates being sustainable as a consequence.

That is the view of Laurent Montador, deputy chief executive officer of French reinsurer CCR, who argues that these issues are intertwined and reinsurers must pay close attention to the increase of rates versus the growing risks they are taking—plus an increasing level of uncertainty.

“Cyber risk—especially silent cyber—is a growing issue for the industry as companies look to get a handle on their exposures, report and classify what is, and what is not, covered,” Montador said.

“We are seeing much more demand for cyber coverage and a clear awareness of cyber risk in corporations, which are interested in insurance, loss prevention and crisis management.

“As a reinsurer, we tend to prefer to deal with companies that have a solid handle on their cyber liabilities and we do not write huge limits.

“In some insurers there has been an issue with quality control but on the back of improvements in risk modelling, insurers are realising that their capital could be very exposed to cyber events, so cyber needs to be tackled in a way that better defines the extent of coverage.”

He added that regulators and rating agencies are taking this issue more seriously, with both taking a keen interest in how insurers are managing their cyber exposures.

“This is a growing challenge for the industry and will be a big talking point in Monte Carlo,” Montador said.

Climate change is becoming a much bigger issue for the industry, he said, as the industry starts to see some of the potential consequences and understands that it can have an impact on many different lines of business, from nat cat to mortality rates.

“It is a very big subject for insurers and reinsurers and we have a big role to play in helping society get a grasp on the consequences of this,” he said.

“It is certainly true that as we experience more randomness and uncertainty, the frontier between insurability and un-insurability starts to change.

“It is very important that the industry invests in better understanding climate change and its consequences. Risk modelling will have an important role to play and our ability to respond quickly after an event will become very important.

“The industry can move into helping more on prevention and risk awareness. This will also be a big talking point.”

Unsustainable rates

With growing risk and uncertainty, it is very important that the industry achieves sustainable pricing, Montador said. This is a challenge, he admitted, largely due to the intense competition in the market for certain risks.

“Prices are not sustainable, even if there is some hardening,” he said.

“Rates remain low, interest rates are low, yet the risks are increasing. There is a disconnection between these things, especially when you consider things such as cyber and climate change and the greater uncertainty they bring.”

That said, CCR Re “is in good spirits” as it approaches the next renewal, he said. Its profitability has continued to improve and its combined ratio decreased in the six months to June 2019 to 98 percent, while it posted a 16 percent increase in gross written premiums.

“We continue to be very selective in the business we write, sticking to our preferred markets and selected lines,” Montador explained.

“We have been investing heavily in technology including artificial intelligence to improve and speed up our processes.

“We differentiate ourselves by our quality of service and the speed of that service as well as our transparency in how we do business. We are able to discuss challenges with clients and add value in that way.”

One example of CCR’s innovation can be seen in its forming in March the first sidecar to be domiciled in France. 157 Re will assume a 25 percent quota share of CCR Re’s worldwide property catastrophe portfolio, providing the reinsurer with a source of collateralised retrocessional reinsurance capacity.

“It was a form of innovation; we proved that ILS in France is possible and we would like to see others take the same path,” Montador said.

“This represents another way we can share knowledge and capacity with clients in France and help them in their businesses.”

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