The year 2020 is just months away, and in the latest edition of EXPOSURE — the RMS magazine for risk management professionals, we consider some of the changes that the (re)insurance industry will have undergone in ten years’ time. Mohsen Rahnama, Cihan Biyikoglu and Moe Khosravy from RMS tackle the issues, examining the evolution of risk management, the drivers of technological change, and how all roads lead to a common, collaborative industry platform.Continue reading
On February 1, I had the opportunity to speak at a panel session entitled “Technology as a Driver for ILS Growth” at the Artemis ILS Conference in NYC. It was a full house, with 350 attendees from across insurance, banking and financial markets. My fellow panelists were Sean Bourgeois, CEO of Tremor Technologies; Yaniv Bertele, Co-founder and CEO of Vesttoo, and Andries Hoekema, Global Head of Insurance for HSBC Global Asset Management. This session was chaired by Tom Johansmeyer, Co-head of PCS Strategy and Development from Verisk Insurance Solutions.
Despite the impact of consecutive years of losses, the insurance-linked securities (ILS) market continues to strengthen and expand to become a significant provider of global reinsurance and risk capital. And as financial instruments become more complex, and competition increases, the ability to successfully adopt new technology will emerge as a differentiator to separate the winners from the losers.
From our panel discussion, we had general agreement on what these technology drivers of ILS growth will be, and we coalesced around five drivers:
Water, wind, and wildfire. It’s been a devastating three months for the U.S.
Total insured losses from Hurricanes Florence and Michael, and the Camp and Woolsey wildfires are estimated by RMS in the range US$18.6 billion to US$28 billion (see table below):
|September 1||Hurricane Florence||$2.8 – $5.0 billion|
|October 8||Hurricane Michael||$6.8 – $10.0 billion|
|November 8||Camp Wildfire||$7.5 – $10.0 billion|
|November 8||Woolsey Wildfire||$1.5 – $3.0 billion|
|TOTAL INSURED LOSSES||$18.6 – $28 billion|
While California wildfires may seem far removed from Atlantic storms, for capital markets investors the fires may make the difference to how 2018 is remembered. Insurance Linked Securities (ILS) eyes are now trained on multi-peril aggregate catastrophe bonds.
When I was still a teenager – summer brave, full of sport, hot and bold – I hitchhiked from Lithuania to Armenia and back again. Outbound via the former Soviet Union and the Caucasus; home via Turkey and the Balkans.
Time rich and cash poor, I took risks I wouldn’t today. All the same, my gambles paid off and I look back on that adventure fondly.
The journey was filled with comparisons and contrasts. Some things, like being invited in basic Russian to squeeze into a crammed Lada Riva, remained almost constant from country to country. Others, like the landscapes and local delicacies, evolved with every new ride.
When I found myself back in Istanbul last month for the first time since my hitchhiking days, I was again struck by these contrasts. Here I was, a guest of the United Nations, discussing disaster risk reduction financing with the finance ministers of those countries through which I’d once hitchhiked. And here I was, marveling afresh at the cultural, political, economic and geographical diversity of a vast region which yet shares so much.
With positive changes under way to improve both public and private carrier participation across the U.S. flood market, many are looking to seize the opportunity that the U.S. flood market presents. Insurers, reinsurers, and the capital markets are exploring this opportunity which, in turn, has created a thirst for knowledge. I had the opportunity to see this first-hand when I was invited by Trading Risk magazine to take part in a panel discussion at the Trading Risk ILS: Reloaded and Resurgent event in New York last month. Sofia Geraghty from Trading Risk served as our moderator, and Joanna Syroka, Director of New Markets at Fermat Capital Management, and Ian Hanson, Vice President of Willis Re, were also on the panel.
One point that the audience wanted to understand was the level of demand to take on flood risk from an investor’s viewpoint, and also whether U.S. flood risk can be a portfolio diversifier. From the insurance-linked securities (ILS) side, Joanna confirmed the demand is there, but as with any peril, the ILS market needs to be able to clearly understand and define the risk to get comfortable enough to invest.
As an organization, it is always great to get recognition from the industry for the work that you are doing; and industry recognition does make a real difference to the teams that work so hard to produce robust, quality solutions that are solving the problems that the market faces. And so, on September 27, off we went to Cipriani 25 on Broadway in New York, for the Eleventh Reactions Annual North America Awards, with RMS receiving the “2018 North America Risk Modeler of the Year” award.
This award is decided by votes from the industry and it recognizes our reputation for providing best-in-class support and leadership to our North America clients, and especially at times when insight is so critical to a business — such as during the significant cat events that ran through 2017. It also provides an endorsement for the approach that RMS is taking more generally to anticipate and deliver on the needs of the North America market, to keep pushing the boundaries and break new ground, to help a growing client base across the industry ranging from reinsurers and carriers through to capital markets.
The pace of change continues to accelerate across the insurance industry, whether it is from technology, regulation or market developments, and EXPOSURE magazine helps risk professionals to explore some of the key drivers of these changes.
In this latest edition available for distribution at the Monte Carlo Rendezvous and online, the lead story looks at the recent market activity from Tower Insurance in New Zealand. By adopting high-definition earthquake modeling, Tower gained the confidence to launch risk-based pricing for its customers, providing savings for the majority of policyholders, but increases for others. EXPOSURE looks at the implications of Tower’s actions and how this could affect the New Zealand insurance market.
High resolution modeling has also helped Flood Re in the U.K. to better understand how it can work towards its remit of delivering a flood insurance market based on risk-reflective pricing that is affordable to policyholders. EXPOSURE shows how innovative use of modeling could guide Flood Re when recommending investment measures to protect properties at risk of flooding.
There is nothing quite like a “banging EP” to make me feel young again. But that wasn’t the only aspect of my most recent trip to Miami that brought out the millennial in me.
If you missed Exceedance 2018 a few weeks back, you probably also missed Resilience 2018. Embedded every year within Exceedance, RMS holds a space for policymakers and business leaders to collaborate to a very important end: ensuring local communities and regional economies are resilient to the shocks and stresses they face.
Much has been written about how millennials seek work that is meaningful (Schullery, 2013); work which solidifies their self-efficacy (Chalofsky + Cavallaro, 2013). I also blog about the relationship between aims and actions; between purpose and profit.
And there’s some truth in the generational stereotypes. After all, research suggests that impact investing continues to “skyrocket.”
The latest edition of EXPOSURE is essential reading for risk professionals, as we look back at what can be learned from last year’s events and look forward to the future including new challenges faced by the global risk management community and new opportunities to capitalize on.
EXPOSURE offers a unique perspective with a clear mission “… to provide insight and analysis to help insurance and risk professionals innovate, adapt and deliver.” And with a new North Atlantic hurricane season nearly upon us, and memories of HIM (Hurricane Harvey, Irma and Maria) fresh in the industry’s collective consciousness, EXPOSURE talks to the industry and paints a picture of a mature, responsible insurance sector that managed HIM with certainty and confidence. Cyber has also demonstrated its potential as a global systemic risk, and EXPOSURE looks at how events such as an outage of a major cloud services provider could generate economic losses as high as Superstorm Sandy.
On July 8 last year, the U.K. Prime Minister, Theresa May, announced her intention to establish the Centre for Global Disaster Protection.
The big idea: capitalize on the City of London’s expertise in financial services in order to help the governments of developing countries become more resilient to natural disasters, using risk transfer, where appropriate, to avoid humanitarian crises and augment disaster aid.
Later that month, Lord Bates, the U.K. Government Minister of State for International Development, shared more color on the Centre’s remit. Addressing the International Insurance Society, he explained:
“It is about investing in the data, research and cutting-edge science to analyze risk and design systems that work well for the poorest people. It is about providing training and sophisticated analytics.
It is about pre-disaster planning, including bringing vulnerable people into the dialogue on how support should flow in an emergency.
It is about providing neutral advice — supporting countries in making decisions about which financial instruments are right for them.
It is about innovation — looking at new ways of working and building new collaborations across the finance and humanitarian communities, to design financial instruments that work for developing countries.”
Lord Bates’ address also highlighted the analytical role RMS played in the U.K. Government’s decision to create the Centre.