UnipolSai will seek more property-cat coverage

UnipolSai Assicurazioni will buy more property-catastrophe capacity this year and will not renew its €200 million ($231 million) cat bond Azzurro Re I, which expires on December 31, 2018. Instead, it will rely on its existing panel of 17 reinsurers for support until it explores the possibility of issuing a new cat bond in the first quarter of next year.

Marco Sordoni, head of reinsurance buying for the Italian insurer, said that the company bought around €1.5 billion ($1.7 billion) of property-catastrophe reinsurance cover last year. He expects this to increase this year, but it does not intend to add any new reinsurers to its panel. Sordoni said he expects the price to change on only a risk-adjusted basis; as such, any change is likely to be negligible.

“We will be seeking more capacity and we are also prepared to look at rates but only on a risk-adjusted basis; taking results into account, we do not expect an increase,” he told Monte Carlo Today. “We have very long-term deep relationships with our reinsurers and I look forward to very productive negotiations in Monte Carlo.”

Sordoni has restructured the company’s reinsurance programme in recent years, cutting its partners to around 17 compared with more than 40 previously. The process was accelerated when, in collaboration with Willis Re, the insurer launched Multipol, a multiline aggregate excess-of-loss programme.

All this means that every reinsurer must be prepared to work with the insurer on all its lines of business globally. This advanced nature of the product means the number of reinsurers able to actively quote was lower than those participating on standard treaties.

Despite requiring more property-cat coverage, it will not be renewing Azzurro Re I, which it structured in 2015. At the time, the €200 million bond was the first Italian earthquake catastrophe bond to be issued. The three-year bond priced at 2.15 percent, a record low for a first-time European cat bond for a first event indemnity cover at the time.

Sordoni said this is predominantly because he wants to avoid the pressure of finalising a renewal on the traditional side of things at the same time as launching a brand-new ILS into the market. But the new cat bond could reach €300 million in size.

“We liked the deal and we are seriously considering renewing it and even upsizing it, but I think doing it at the same time as the main renewal is too much,” Sordoni said.

“We will look to potentially launch something new by April 2019, which would also tie in nicely with the publication of the group’s new three-year business plan.”

He explained that the nature of its reinsurance agreement means there would be no gaps in coverage during the period between January and April.

“That portion of the coverage could transform from traditional to ILS; the reinsurers will get paid for the three months and the cat bond kicks in after that. It is a standard breach coverage contract,” he said.

He believes that buyers in Monte Carlo are less concerned about negotiations around rates, which will be broadly stable, and more worried about the impact of mergers & acquisitions on the market.

“There is the question of concentration risk appearing when companies merge, but there can also be a churn in terms of the people you are dealing with,” he said.