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Insight and Intelligence on the European and International (Re)insurance Markets

03 Superyacht claim to cost EUR40mn

04 Cyber demand surges05 Zurich to market

£2bn UK EL book

06 Munich Re Syndicate moves into marine XoL

08 Swiss reinsurers post full year loss

13 Interview: Denis

Kessler, CEO, Scor17 Insurance stocks rise

in Q3 despite losses21 Interview: Emmanuel

Clarke, CEO, PartnerRe

SUNDAY

22 OCTOBER 2017

MONDAY

23 OCTOBER 2017

InsIde

BRINGING OPPORTUNITY TO RISKADAPTATION + OPPORTUNITY = GROWTH

BADEN-BADEN

Those (re)insurance industry participants waiting for a widespread

market turn following major catastrophe losses will not necessarily survive in today’s fast-paced and rapidly evolving world, the president of Guy Carpenter’s international division has claimed.

Speaking at the Guy Carpenter Baden-Baden Reinsurance Symposium yesterday, James Nash emphasised the importance of innovation in achieving success as the pace of change in the sector accelerates.

Nash said that the capital structure of the industry had changed significantly in recent years, with the most dramatic change taking place in the last five years.

And following a succession of Q3 cat losses, it is now waiting to see how the capital markets players respond.

“If the theory plays out in practice, those participants waiting for the market to react with rationing of capacity – followed by significantly higher prices – will no longer be

ensured survival,” Nash told the audience.“For them to survive they need to find new

and better ways of doing business.”Commenting on the conference’s theme

of disruption, Nash argued that the industry was not unfamiliar with the concept.

He pointed to the way in which the creation of the Bermuda market had changed the status quo for catastrophe writers at Lloyd’s, how catastrophe models had altered the market’s view of risk, and how the entry of new capital had “stirred up” the market as previous examples of change.

But “the pace and diversity of disruption is changing”, Nash said.

New sources of data, such as telematics and the Internet of Things, as well as new ways of using this data, are changing the way the world conducts its business, he explained.

Emerging products are creating new risks, while workflow, processes and distribution methods are also changing, Nash continued.

“All of these are disrupting the world order,” he said.

However, people and organisations will always want to protect their assets, and lay off some of their risk to others, the executive explained.

There will also always be those with capital willing to assume that risk, he added.

“In between and around those poles, everything is subject to change,” Nash said.

At the event, Munich Re CEO Joachim Wenning echoed Nash’s comments in a later keynote speech.

“Disruption does not automatically bring opportunities, the industry must earn them,” he said.

Clients are changing the way they do business, and the (re)insurance industry must create innovative, digital products to suit their needs, the CEO continued.

“Going forward, digital transformation – of data and technology – will serve as a bridgehead to sophisticate our value drivers.”

Industry cannot afford to rely on post-event turn: nash

Find out more at munichre.com/cyber

Let’s turn digital threats into client’s trust.

Frompiracyto privacy

10.9.17_Privacy_215,9x279,4_en.indd 1 10.10.17 15:58

CommenT

03dAY 2: mondAY

make no mistake about it, at times like these, the modelling and ratings

agencies are the de facto regulators of the marketplace.

The last time they had this much power at their disposal was in 2005 and 2006 after $85bn of Katrina, Rita and Wilma losses had been cranked through the reinsurance pipes.

Modellers had the hardest time of it. They had seriously underestimated the impact of flood and demand surge on industry storm damage and this left them with egg on their faces.

What’s more, KRW followed a very active 2004 season that had already produced four Florida landfalls in the form of Charley, Frances, Ivan and Jeanne. Market wags would describe Wilma as the seventh hurricane of the 15-month 2004/05 season.

This meant that models incorporating a short-term average loss adjustment suddenly had to include a prior period that held a septet of US landfalling hurricanes.

They had been beaten by the statistical equivalent of trying to estimate the average earnings in a random roomful of professional men.

If you know reasonable factors like age, profession and nationality you can very soon come to a realistic and statistically accurate figure for what the average wage of the room will be.

The problem comes when Warren Buffett suddenly walks in and increases your average by a factor of 100.

This is what the magnificent seven windstorms did – they multiplied the running average and piled on the pain. (Thanks to Nicolas Taleb’s The Black Swan for the analogy).

Understandably, there was some questioning of the wisdom of this methodology and plenty of grumbling, but the new average was duly loaded into the models on top of all the flood, demand surge and other adjustments.

Then came the final tweak – it was over to the ratings agencies for their interpretation.

They largely accepted the new output from the models and loaded on an extra prescription of caution, as well as diversification for good measure.

The result was a slow squeeze. New start-ups had to promise pretty strong returns to get over the A- hurdle and incumbents knew that they had to push for real rate rises or risk a downgrade.

That was then and this is now. Models are 12 years more sophisticated.

These days Google has an AI robot that can teach itself to beat the best Chinese Go masters from scratch in 30 days. Satellites can see what you are having for dinner on any given night and drones can fly where even the hardiest loss adjuster fears to tread.

How could models be wrong this time? Unfortunately, the Maria modelled loss

numbers tell a different story. RMS says $15bn-$30bn. AIR says

$40bn-$85bn. How could this possibly be?There is no overlap. Not only is there no

overlap, but the difference between one’s highest estimate and the other’s lowest is $10bn.

The two estimates orbit on different planets with a huge expanse of emptiness between them.

So either one is right and one is wrong or, if the loss is somewhere in the $30bn-$40bn range, both are wrong.

But as all good quantum physicists know, sometimes light can behave like a wave or like a particle. It can be two things at once.

Indeed, how you observe it will actually change the light from one form to another.

Perhaps insured losses exhibit similar behaviour and both estimates can be simultaneously right…?

Meanwhile, back in the real world, us (re)insurance mortals are at the mercy of the theoretical Gods.

In statistical space, no one can hear you scream.

AIR is from mars, Rms is from Venus

“In statistical space, no one can hear you scream”

A superyacht that ran aground in the Red sea is expected to cost

the Lloyd’s marine market eUR40mn ($47.2mn), The Insurance Insider understands.

The Serene, one of the largest superyachts in the world, hit a reef on the Egyptian coast not far from Sharm El Sheikh in late August.

The yacht is insured in Lloyd’s through the lead yacht consortium, which is led by MS Amlin, according to market sources. Following markets include a number of other Lloyd’s syndicates.

The Serene is owned by the Crown Prince of Saudi Arabia, Muhammad Bin Salman, the New York Times reported in a profile of the prince published in 2016.

Salman reportedly bought the yacht, which has a total insured value of EUR420mn, in 2015 from the Russian oligarch Yuri Shefler. According to the New York Times story, Shefler moved off the yacht the same day.

The protection and indemnity (P&I) insurer for the vessel is British Marine, a subsidiary of QBE Europe, according to data on the liability insurer’s website.

There was no oil leak from the yacht. Any damage to the reef could result in a liability claim, but it is not thought that such a claim has yet been made.

Nevertheless, the Serene was towed away from the reef by tugboats – something which is likely to generate a P&I claim.

Muhammad Bin Salman is the heir to the

throne of Saudi Arabia. The 32-year-old is the youngest defence minister in the world and is spearheading the listing of Saudi Aramco, the state oil company, on international stock exchanges.

The loss will add extra pressure to an already strained yacht insurance market.

Hurricanes Harvey, Irma and Maria have inflicted significant pain on yacht insurers, with losses from the latter two events set to run to hundreds of millions of dollars.

The Insurance Insider reported on 10 November that Norwegian Hull Club had tapped reinsurers for $105mn following catastrophe losses from Irma in the Caribbean. Muhammad bin Salman could not be reached for comment. MS Amlin declined to comment.

Saudi superyacht claim to cost market EUR40mn+

[email protected]

mark Geoghegan, managing director

dAY 2: mondAY04

The (re)insurance sector will lose its appeal to investors if it cannot begin

to recover some of the losses sustained from hurricanes Harvey, Irma and maria (HIm), according to munich Re Ceo Joachim Wenning.

The executive, who succeeded Nikolaus von Bomhard as CEO of the reinsurance giant in April, was speaking at the Guy Carpenter Baden-Baden Reinsurance Symposium.

He said of the three North Atlantic catastrophes: “For the three of them we are talking about a $100bn event, maybe $110bn – I don’t know, it’s guesswork. Don’t say it won’t have an impact”.

He continued: “The industry is going to lose assets, so if there won’t be the possibility to earn back assets, the industry will have become sustainably less attractive than what it was thought to be.”

The executive said that an “appropriate balance” would see reinsurers placed in a position where they could earn back their losses. “How much, how quickly, I can’t predict – if I did I wouldn’t tell you.”

In the same session, James Nash, president of Guy Carpenter’s international business, noted that the catastrophes had generated several “known unknowns” ahead of the 1.1 renewals.

“We see a lot of numbers put in front of us but the public releases don’t add up to what the industry is talking about.”

He said that the second of these arose from the asymmetric nature of the HIM losses.

“It will be a capital event for some but not for others,” he said.

Nash named the extent of the capital lock-up for the collateralised writers as the third “known unknown”.

But he dismissed the notion that HIM comprised a major capital event and called for a rational approach from reinsurers at 1 January, urging them to avoid blanket moves on rates.

“Each customer should be treated differently – there shouldn’t be a broad brush approach,” he said.

On the same panel, speakers agreed that disruptive start-ups are unlikely to usurp the position of existing (re)insurers.

Wenning said start-ups are “good at one single activity but they couldn’t potentially with their proposition replace an incumbent”.

“The incumbents are also strong in that they have a brand, they enjoy trust. The start-ups can’t possibly have that same trust.”

When questioned on whether incumbents were disadvantaged by their legacy systems Wenning said: “The challenge is to overcome these disadvantages.”

“Those who don’t overcome them and come up with something stronger than before may lose.”

Scor Global P&C head of strategy and development Adrian Jones also dismissed expectations of major disruption from outsiders to the (re)insurance sector in the near term.

He noted that the change in the sector’s make-up will be “somewhat glacial” over the next few years.

“When you look at the top reinsurers in P&C and life these are companies that have been around for a long time and are not going anywhere.”

The cyber reinsurance market is seeing more demand for stop-loss and per-

event covers after a spate of high-profile cyber-attacks which generated losses in the wider (re)insurance space.

Sources told this publication that carriers writing cyber non-affirmatively, or on a silent basis, were concerned about their net exposures to cyber-attacks, with reinsurers starting to push back on wordings.

To date there has been a “head in the sand approach” towards silent cyber exposures on the part of insurers, which have typically assumed that they will be able to cede cyber risk through a professional lines or casualty treaty, broking sources said.

However, increasingly cyber is being excluded from these treaty placements as the wordings are not fit for purpose, and reinsurers are becoming more concerned about aggregation.

As a result, cedants are now looking for specific cyber reinsurance to cover these risks either on a stop-loss or per-event basis.

Even those cedants which can cede their cyber risk into their existing treaty arrangements are looking to find cover for

their net exposures, which come to them via retentions or cyber sub-limits, one broker said.

He continued: “These insurers say they are willing to write cyber non-affirmatively, but they don’t want any of the exposure. They are ceding virtually all of it out of the back.”

This increased demand for such covers is also part of a wider shift towards non-proportional cyber reinsurance, as the existing standalone cyber market becomes more comfortable with its loss ratios, sources said.

The developments come following a number of high-profile and economically damaging cyber-attacks, such as NotPetya and WannaCry, where insurers found they were exposed to losses via property or other policies.

The Insurance Insider revealed in September that the property market could be facing a business interruption claim of up to $1.5bn from US pharmaceutical giant Merck, which was a victim of the NotPetya cyber-attack.

The claim is likely to be heavily contested by Merck’s property insurers, which are

thought to include Liberty, AIG and Zurich.Meanwhile, Equifax’s September data

breach resulted in losses that went straight through its $150mn cyber tower, and market sources have suggested the firm’s directors’ and officers’ policy could also be hit as a result of the attack.

One reinsurance broker said insurers had been writing cyber risk “with zero underwriting information and for no additional premium”.

He added: “It’s like writing a new property account with no idea of the size of the development, the postcode, or the building regulations.”

However, the cyber insurance market is quietly hopeful that the impact of recent major catastrophe events on the wider (re)insurance sector will lead to a tightening of terms and conditions, meaning less cyber risk will be written non-affirmatively.

“Everyone is looking to 1 January,” one cyber underwriter said. “There is an opportunity here to draw a line under all the non-affirmative cyber which has been written into the wider market. It would be a positive for everyone.”

Carriers must be allowed to recoup HIm losses: munich Re

Cyber reinsurance demand surges as attacks spook cedants

neWs neWs

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05dAY 2: mondAY

Zurich is considering bringing its mammoth £2.0bn ($2.6bn) legacy UK

employers’ liability (eL) book to market in the first half of 2018, The Insurance Insider has learned.

Sources told this publication Zurich is in the very early stages of any sort of disposal process, and is yet to appoint an adviser on the book.

The legacy market has known about Zurich’s £2bn book for more than two years. The insurer moved the portfolio, which holds liabilities from 2006 and prior, off the UK balance sheet and into the Zurich Legacy Solutions division, which is currently led by Neil Freshwater.

So far there has been little movement on the seller’s part to transfer the book to the legacy market.

However, during that time the UK market has seen a widespread sell-off of old EL liabilities, with almost £4bn of reserves changing hands.

One source suggested to this publication that if Zurich came to market with the book in the first quarter of next year it may be “too soon” for the many legacy players that had already acquired a UK EL book.

Most of the major legacy acquirers have already taken on at least one sizeable portfolio, prompting sources to question which player would have the appetite or the bandwidth to take on a book of such a size.

Legacy heavyweight Enstar is one acquirer of the right scale, but it is currently digesting RSA’s £957mn portfolio, which it

acquired in February. Reinsurer Swiss Re has also previously

said that it had sated its appetite for UK EL exposures after sealing a reinsurance agreement for Aviva’s £1bn+ UK industrial and EL book in 2015.

Berkshire Hathaway also has the scale to take on a book the size of Zurich’s, but has demonstrated little interest in UK EL exposures. Sources have also previously indicated that Berkshire Hathaway’s services are typically more expensive than other options available in the market.

The possibility of pooling Zurich’s EL exposures so they might be split between a number of acquirers has been mooted in legacy circles, but to date there has been no suggestion that this is how Zurich would approach the disposal.

Zurich has been notably proactive in addressing its old liabilities, which are a drag on its balance sheet.

Most recently, it awarded exclusivity to Catalina for its EUR400mn ($480mn) German medical malpractice legacy book.

A bidding process is underway as well for a $300mn Australian motor liability book, for which EY is the adviser. It has been suggested this particular process is nearing

its final stages. Also understood to be on the block is a

EUR200mn German architects’ professional indemnity portfolio, and a Spanish med-mal book thought to hold just under EUR200mn in liabilities. No adviser has been appointed for either book.

Zurich’s use of the legacy market is part of a wider push by live carriers to free up capital by addressing their back books.

This, coupled with Solvency II and other more stringent capital regulation, is expected to bring a wave of liabilities to the market on both sides of the Atlantic.

However, while the UK and US have embraced legacy as a capital optimisation tool, Europe has been slower to get on board, hindered in part by the negative sentiment attached to run-off business.

Zurich declined to comment.

Zurich to market £2bn UK eL book in 2018

UK EL legacy dealsCompany Gross reserves Stage

Aviva £1bn+ Reinsurance deal struck with Aviva

Axa £1.1bn Deal struck with Riverstone

Allianz £185mn Deal struck with Catalina

The Hartford (excess)

£477mn Deal struck with Catalina

QBE £170mn Reinsurance deal struck with Armour

RSA £957mn Deal struck with Enstar

Zurich £2bn Adviser to be appointed

Source: The Insurance Insider

The marine cargo market is bracing itself for a $60mn claim from

Hurricane Harvey after south Korean auto manufacturer Hyundai motor Company suffered damage to a consignment of cars in transit.

After the storm’s landfall in August, flooding inundated a Texan port terminal where cars had been stored while awaiting distribution to various locations in the US.

The claim is the first major cargo loss to be notified following the storm, but is sure to be followed by a spate of others as mariners come to terms with the worst quarter for the market since Superstorm Sandy inflicted $2.5bn-$3.0bn of losses in the third quarter

of 2012. It is not yet clear which carriers are on the loss, which is expected to be syndicated across the global marine market.

Goods being stored at ports and goods in transit and waiting in warehouses tend to be covered by cargo policies written in the global marine insurance market.

Details of cargo losses from Harvey have been hard to come by in the two months since the storm hit Texas.

Other auto manufacturers likely to put in cargo claims are thought to include VW and Fiat Chrysler.

One senior marine source said that the cargo loss from Hurricane Harvey could be as high as $1bn, and yacht losses from Irma and

Maria will easily run to hundreds of millions of dollars.

Losses from a single yacht facility underwritten by Norwegian Hull Club led the mutual to warn reinsurers it would be tapping them for a $105mn claim.

Other marine losses stemming from the storms include a significant marine liability claim from the running aground of the oil drillship Paragon DPDS1, which broke free from its moorings during Harvey and blocked the entrance to Corpus Christi harbour.

The vessel ended up colliding with a tugboat, causing the port to shut for several days.

Hyundai to hand cargo market $60mn Harvey claim

“Zurich has been notably proactive in addressing its old liabilities, which are a drag on its balance sheet”

06

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06 dAY 2: mondAY

munich Re syndicate Limited has begun underwriting a London

market marine excess-of-loss (XoL) treaty portfolio, The Insurance Insider can reveal.

The syndicate commenced underwriting for the book last Friday, and also appointed Sabine Gosch as head of reinsurance, reporting to chief underwriting officer Dominick Hoare.

Hoare explained to this publication that the syndicate was able to take the decision from an idea, to boardroom and Lloyd’s approval, to being ready to write business in just two weeks.

“This is a dislocated market right now – we’ve been in the market buying replacement cover for our programme and we know it’s not easy, there’s not a lot of capacity around right now,” he said.

“We thought rather than coming in when the market is full of capacity, we could come in and provide it when people see value in the product and clients have a real

requirement for it.”The Munich Re Group’s core marine XoL

treaty business will remain in Munich, where much of the firm’s underwriting expertise is located, while the syndicate will write complementary business.

“It’s not transferring business from Munich, it’s purely augmenting that core portfolio,” Hoare explained.

He added that the syndicate’s aim was to access those clients or programmes outside existing core Munich Re relationships.

The CUO declined to comment on target line sizes, saying only that they would be “significant but not of the stature that would destabilise the market or cause an issue”.

Hoare added that London had a unique distribution base, with the majority of marine reinsurance brokers based in the UK capital.

New appointment Gosch is currently chief operating officer for the firm’s global marine

partnership in Munich, and will transfer to London as head of reinsurance for Munich Re Syndicate, assisted by Katharina Köhler.

Gosch said there was a need to “provide support and capacity to a market that has suffered dislocation as a result of the recent catastrophe losses”.

Marine treaty has endured a torrid time over the past few months, following three major Atlantic hurricanes.

Mutual marine insurer Norwegian Hull Club warned its reinsurers of a large loss from Hurricane Irma, issuing a provisional estimate of $105mn.

Two of holiday company Sunsail’s yacht fleets were wrecked by the Category 5 hurricane as it tore through the French territory of St Martin and the British Virgin Islands in September.

In addition, the ongoing Californian wildfires are expected to hit inland marine reinsurers, which cover tractors, harvesters and other equipment related to wineries.

The two largest continental reinsurers have been looking outside the

cat bond market for retro support in recent years, but a number of multi-peril insurance-linked securities (ILs) transactions have kept a supply of european risk flowing into the market.

Swiss Re has been largely absent from the cat bond market for several years, instead relying on sidecar capital from its longstanding Sector Re vehicle. In the same vein, Munich Re’s Queen Street cat bond issuances have been increasingly sporadic as it has been expanding the more recent Eden Re sidecar.

And in a blow to investors seeking diversification through exposure to non-US wind deals, several other European issuances from smaller carriers also lapsed this year. These included Groupama’s Green Fields and a Hannover Re bond.

However, in the past two years, European risks have featured on total cat bond limits of almost EUR1.6bn ($1.0bn). This has been driven by just two sponsors – Generali, with some innovative risks for the ILS market, and XL’s massive multi-peril Galilei Re deals.

XL raised $1.275bn from two concurrent Galilei Re issuances in December 2016. The deals cover European windstorm as well as earthquake and storm risks in the US and Australia.

Meanwhile, Generali raised EUR200mn

from its Lion II Re 2017-1 cat bond in June. The bond covers European flood risks alongside European windstorm and Italian earthquake perils, all on an indemnity, per-occurrence basis.

The deal was the first ILS transaction to include European flood and replaced the insurer’s EUR190mn Lion Re cat bond issued in 2014, which matured this year.

At the close of last year, Generali completed its new motor liability reinsurance securitisation at EUR255mn, providing it with indemnity reinsurance on its third-party motor liability business.

It was the first ILS transaction to focus on motor liability and was heralded as a deal

which would open the doors to new risks in future.

Another new European risk was brought to market last year by Allianz Risk Transfer, which closed its Market Re parametric weather bond at $30mn to insure against a warm European winter.

The JLT Capital Markets-issued bond brought weather reinsurance to the ILS market for the first time since 1999.

More European risks are in the pipeline for the ILS market.

Last week, XL Catlin launched a $150mn Galileo Re 2017-II cat bond, which will cover European windstorms as well as US, Canadian and Australian risks.

munich Re syndicate begins writing marine XoL

European sponsors shy away from cat bond market

European cat bondsDeal Sponsor Size (EURmn) Peril

Eurus III 2012 Hannover Re 100 Euro wind

Atlas VII 2012 Scor 130 Euro wind, US wind and quake

Queen Street VII Re 2012 Munich Re 63.5 US and Euro wind

Calypso Capital II 2013 Axa 350 Euro wind

Green Fields II 2013 Groupama/Swiss Re 280 French wind

Galileo Re 2015 XL Catlin 250 Euro wind, US wind and quake

Market Re 2016-5 Allianz Risk Transfer 26 European warm winter

Horse Capital I Generali 255 European motor third party liability loss ratio

Lion II Re 2017-1 Generali 200 European wind, Italian quake, European flood

Galilei Re 2016 and 2017 XL Bermuda 1,100 European wind

Pipeline

Galileo Re 2017-1 XL Catlin 127 European windstorms

Source: Trading Risk

AA-Standard &

Poor’s

Aa3Moody’s

AA-Fitch

Ratings

C12

O8

HO2

HO5

O5

C18

C21

HO1O4

O1

C20

H4C15

C19

HO6

HO5C10

O2

AM BestA+

Stable Outlook

Stable Outlook

Stable Outlook

Stable Outlook

“SCOR’s success story continues. Over the past 15 years, the Group has overcome obstacles, faced economic and financial crises, and absorbed major natural catastrophes. Throughout this long journey, SCOR has held its course. SCOR has achieved the solvency and profitability strategic targets set out in its successive plans. It has grown, reinforced its financial strength and expanded and deepened its franchise. It has diversified its portfolio and developed a superior risk management strategy. Today, SCOR is a truly global group. The upgrade of our rating to A+ by A.M. Best on September 1st, 2017, which follows the upgrade to AA- by S&P and Fitch in 2015 and to Aa3 by Moody’s in 2016, once more demonstrates the relevance of SCOR’s business strategy and confirms SCOR as a Tier 1 global reinsurer. The Group’s strength is a clear benefit for our clients.”

Denis KesslerChairman & Chief Executive Officer

www.scor.com

SCOR’s strengthstands out clearly

08

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08 dAY 2: mondAY

swiss reinsurers posted an overall underwriting loss in 2016 as their

collective non-life combined ratio increased by 10 percentage points year-on-year to 106 percent, data from the swiss Financial market supervisory Authority (Finma) shows.

The deterioration in the combined ratio came after claims and expenses rose.

Finma said the overall claims ratio for the non-life reinsurance sector rose by 5.3 percentage points to 61.0 percent in 2016.

Short-tail claims for non-life reinsurance business crept upwards by 1.5 percentage points from the previous year, giving Swiss reinsurers a short-tail claims ratio of 59.2 percent.

For long-tail classes, claims increased by 4.2 percentage points to 65.6 percent.

Although still below average, the claims ratio for cat-exposed business jumped by 22.9 percentage points from 2015 to 50.3 percent, in a year when several midsized catastrophes struck Europe.

According to data from cat modelling firm Perils, European catastrophe incidents last year included Extratropical Cyclone Egon, which caused an estimated EUR275.0mn ($325.1mn) in losses, while over £1.0bn ($1.3bn) in UK flood damage came from storms Eva-Frank and Desmond.

Us claims also hit swiss reinsurers The Finma report said: “In 2015, the long-tail sector benefited from liquidations in actuarial reserves, which was not the case

in 2016. This situation was aggravated by a higher claims burden in the liability sectors in North America and other regions.”

Gross written premiums (GWP) in the Swiss reinsurance market rose by 26 percent in 2016 to CHF51bn ($52bn).

Finma attributed the rise in GWP to “very significant” intra-group reinsurance deals. Reinsurance premiums for long-tail lines, such as liability and accident reinsurance, jumped by 41.4 percent to CHF14bn, the regulator said.

Short-tail reinsurance premiums increased by 14.1 percent, while the life reinsurance top line leapt by 51.2 percent.

Natural catastrophe reinsurance showed a slight fall in GWP, declining by 3.8 percent to CHF2.6bn as carriers trimmed cat exposure.

Finma said the strongest growth in the Swiss reinsurance market came from North America, where GWP increased by 63.3 percent to CHF19bn.

The regulator attributed premium growth in North America to the impact of a few large placements.

The Swiss reinsurance market increased premium generated by Asia Pacific business by 11.6 percent to CHF11.2bn.

The market’s top line for reinsurance in Europe rose by 6.6 percent to CHF9.8bn, while reinsurance premiums in the rest of the world grew by 9.6 percent to CHF1.78bn.

In total, non-life reinsurance expanded by 22.7 percent from 2015 to CHF31.5bn.

However, the aggregate profits of Swiss

reinsurers plunged in a poor year for investment returns. Profits fell by 65.6 percent to CHF2.92bn and investment income collapsed by 67.1 percent to CHF2.3bn.

The average return on equity (RoE) for the Swiss reinsurance market fell by 17.58 percentage points year-on-year to 9.80 percent.

The Zurich reinsurance market’s solvency ratio improved in 2016 from the year before. According to the aggregate results of the Swiss Solvency Test, the solvency ratio climbed by 17 percentage points to 217 percent.

The statutory equity capital base fell by 4 percent over the year from CHF31.0bn to CHF29.8bn. However, the Swiss reinsurers’ equity capital base had significantly increased in the two preceding years from CHF26.9bn in 2014 to CHF31.0bn in 2015.

Looking forward to results for the full year 2017, it is likely the Swiss reinsurance market will record another underwriting loss.

On 20 October, Swiss Re estimated that its claims burden for hurricanes Harvey, Irma and Maria and the Mexico earthquakes would be around $3.6bn, net of retrocession and before tax.

The reinsurer estimated that total insured losses from the disasters would be $95bn.

Swiss Re noted that the claims totals were subject to a “higher than usual degree of uncertainty”, and could face further readjustment in future. Swiss Re is by far the largest Swiss reinsurer, while global commercial insurance giant Chubb has had its headquarters in Zurich since the 2015 merger with Ace.

InsuranceFor the overall market, including insurance, reinsurance and life, profits increased by 21 percent to CHF8.1bn. Average RoE bounced up by 2.25 percentage points to 14.65 percent.

Premiums for all lines rose by 6.1 percent to CHF131.79bn.

Health insurers did particularly well, seeing profits rise by 25.6 percent to CHF7.01bn.

For non-life and health carriers, GWP was down 1.9 percent in 2016 to CHF47.97bn.

Continued on page 10

swiss reinsurers made underwriting loss in 2016

Loss ratios for direct Swiss businessClass Loss ratio 2015 Loss ratio 2016 Y/Y change

Health 77.4% 77.7% +0.3 pp

Fire/property 46.1% 45.7% –0.4 pp

Accident 76.1% 72.8% –3.3 pp

Land vehicles (liability) 65.5% 64.7% –0.8 pp

Land vehicles (comprehensive) 44.2% 39.3% –4.9 pp

Liability 38.9% 41.5% +2.6 pp

Marine, aviation and transport 42.0% 50.7% +8.7 pp

Legal expenses 52.7% 53.2% +0.5 pp

Financial losses 63.5% 70.9% +7.4 pp

Credit and surety 41.8% 40.1% –1.7 pp

Tourist assistance 72.8% 76.2% +3.4 pp

Total 63.1% 62.9% –0.2 pp

Source: Finma

AnALYsIs

PartnerRe brings clarity to uncertain times.

partnerre.com

AnALYsIs

dAY 2: mondAY10

Claims also dipped slightly by 1.9 percent. Overall investment returns for non-life

insurers increased by 0.81 percentage points to 4.44 percent. The average RoE for Swiss primary insurers improved by 2.91 percentage points to 17.82 percent.

A poor year for profits at Zurich Insurance Company in 2015 had caused aggregate profits for Swiss insurers to fall, but last year profits returned to the levels they were at in 2013 and 2014, Finma said.

Non-life insurance companies had premium growth of 2.1 percent, compared to 1.2 percent in 2015.

Finma noted that there was “above-average” expansion of premiums in health, property, motor and accident insurance.

Swiss health insurance premiums rose by 3.7 percent to CHF10.23bn. Fire and property cover remained flat at CHF4.03bn.

Rapid growth was seen in smaller lines such as financial cover and tourist assistance, which grew by 9.3 percent and 11.7 percent respectively to CHF379mn and CHF233mn.

Insurance for legal expenses increased by 6.5 percent to CHF584mn.

Premium fell materially in marine, aviation and transport lines, with the Swiss market writing CHF363mn across the three classes in 2016, which was 7.5 percent less than in the year before.

Liability premiums also dropped, by 1.2 percent to CHF1.98bn.

market share stableThe relative market share of the direct Swiss insurers changed little over 2016, the Swiss regulator said.

Axa Insurance led the pack with an 18.6 percent share over the year – a 10 basis point fall from its market share in 2015. Axa wrote CHF3.27bn in premiums in Switzerland over 2016.

Swiss Mobiliar was the second largest writer of direct insurance in Switzerland over the year, booking CHF2.70bn in premiums and taking a 15.3 percent slice of the market. Global insurer Zurich is also a major player in the local market and wrote CHF2.53bn in gross premiums over 2016, representing a 14.3 percent share.

Overall, claims for non-life insurers “remained stable”, according to Finma, in a year that saw no major natural catastrophe events in Switzerland.

A fall in both crime and the number of car accidents that resulted in serious bodily injury helped push down overall claims by 0.2 percent.

Marine, aviation and transport was the line that had the biggest increase in the loss ratio over 2016 compared to the previous year, with the claims ratio increasing by 8.7 percentage points to 50.7 percent.

Financial lines losses also increased, with the loss ratio shifting up by 7.4 percentage points to 70.9 percent.

Finma noted that non-life insurers continued to enjoy “very comfortable solvency levels”, with the Swiss Solvency Test ratio up 35 percentage points to 228 percent. However, the improvement could be largely attributed to a change in the method the regulator uses to calculate solvency.

Under the previous regime, the Swiss insurers would have scored 202 percent.

For the total Swiss (re)insurance market, including life, non-life and reinsurance, the solvency ratio rose by 22 percentage points, according to the Swiss Solvency Test.

Total claims paid fell by 0.3 percent to CHF74.9bn.

Overall investment gains by Swiss carriers – an aggregate figure including life, non-life and reinsurance – dropped by 18.2 percent to CHF17.84bn. Total gross premiums for the entire market were up 6.1 percent to CHF131bn.

Annual profits for the aggregate market fell by 27.4 percent to CHF11.0bn. The Bern-based regulator attributed the fall in profits to “one-off effects in the reinsurance sector in 2015”.

Total market investments grew by 3 percent in 2016, but reinsurers grew investment portfolios more significantly, putting 11 percent more capital to work in 2016 than in the year before.

Capital allocations remained stable across the Swiss market, with bonds making up half of (re)insurers’ portfolios.

Equities and other riskier asset classes remained a minimal feature of Swiss investment holdings. Equities made up 3 percent of assets allocated in 2016 compared to 2 percent the year before. Alternative investments and derivatives made up 2 percent and 1 percent of insurers’ allocations respectively – the same allocation as the previous year.

Non-life insurers had the strongest investment returns in 2016 at 4.44 percent, up from 3.36 percent in 2015.

Continued from page 8

Premiums earned by reinsurersCategory 2015 (CHF '000) 2016 (CHF '000) % change Y/Y % of total 2016

Short-tail 13,021,868 14,859,282 14.1% 35.5%

Long-tail 9,911,836 14,010,941 41.4% 33.5%

Catastrophes 2,719,958 2,615,418 -3.8% 6.2%

Total non-life 25,653,662 31,485,641 22.7% 75.2%

Life 6,868,586 10,382,567 51.2% 24.8%

Total net premiums 32,522,248 41,868,208 28.7% 100%

Asia Pacific 10,035,990 11,200,450 11.6% 26.8%

Europe 9,153,850 9,762,367 6.6% 23.3%

North America 11,713,008 19,129,840 63.3% 45.7%

Rest of world 1,619,400 1,775,551 9.6% 4.2%

Source: Finma

Market shares of non-life insurersCompany Booked premiums

2016 (CHF '000)Market share 2016 (%)

Booked premiums 2015 (CHF '000)

Market share 2015 (%)

Axa Insurance Ltd 3,271,711 18.5% 3,250,944 18.6%

Swiss Mobiliar Insurance Company Ltd 2,698,677 15.3% 2,630,174 15.1%

Zurich Insurance Company Ltd 2,530,051 14.3% 2,572,663 14.7%

Allianz Suisse Insurance Company Ltd 1,810,305 10.3% 1,766,805 10.1%

Helvetia Insurance Company Ltd 1,491,238 8.5% 1,496,090 8.6%

Baloise Insurance Company Ltd 1,289,753 7.3% 1,291,036 7.4%

Vaudoise Insurance Company Ltd 869,011 4.9% 822,693 4.7%

Generali Insurance Company Ltd 790,437 4.5% 775,183 4.4%

Eight largest insurance companies 14,751,183 83.6% 14,605,588 83.7%

Source: Finma

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13dAY 2: mondAY

InTeRVIeW

“This is a serious wake-up call. It’s like a near-death experience, when

you don’t die but you see the bullet pass close to your head for a second time, two years in a row.”

So begins a stereotypically bombastic conversation with Scor’s CEO and chairman Denis Kessler.

Kessler is a man who is not shy about speaking his mind – in September 2011, he told French newspaper Les Echos that an implosion of the Eurozone could no longer be ruled out, and that even the strongest countries in the Eurozone could become hostile to the euro currency.

Then in June 2014, he told the International Insurance Society’s 50th annual seminar that central banks were “ruining the (re)insurance industry”, called the prolonged low interest rate policy a “disaster” and described reinsurers as “collateral victims”.

Also, don’t let the heavy Alsace accent fool you – Kessler has a masterful grasp of the English language.

Take this pearl from his discussions a few years ago on how to compose a book of reinsurance business: “Portfolio management is like composing a fruit basket. You like differently each fruit in the basket,” he said.

“You sometimes have to accept the minimum kiwis to get the maximum

bananas or the reverse according to your preferences,” he added.

Monsieur Kessler is not one for mincing his words.

The aforementioned wake-up call refers to the impact the recent hurricanes Harvey, Irma and Maria are likely to have on renewal negotiations at 1 January and beyond.

Kessler believes the reverberations from this Q3 2017 season will be felt for months to come.

“What is truly severe in reinsurance is a series of destructive events. Three catastrophes in a row is rare – and it’s something which will affect the market,” he says.

“The issue is that the total insured cost of this series of events will most likely exceed the amount of annual premium of the US P&C reinsurance market – across all business lines – which is representing close to half of the annual premium of the global P&C reinsurance market. And it is expected that more than 60 percent of the total insured cost will be transferred to reinsurance.”

Scor’s own losses appear to have been cushioned by its retro providers and its cat bonds.

The French reinsurance giant reported a post-tax EUR430mn ($508mn) net

cost from the HIM hurricanes and the two earthquakes that hit Mexico in September. Jeffries analyst Philip Kett noted the day after Scor’s disclosure that its retrocession arrangements had saved the carrier as much as EUR520mn pre-tax, reducing its losses by more than 44 percent.

Without discussing the specifics, Kessler talks at length about the

time spent developing Scor’s retro programme. “At Scor we’ve been a strategic

retro buyer for the past 15 years and we’ve

always favoured

business

continuity with our retrocessionnaires. Being well protected in such situations is an integral part of our capital shield strategy.

“So I expect our discussions with our retrocessionnaires will not be different from what they used to be,” he says, adding that he expected his peers’ books to be hit harder in relative terms than Scor’s.

Underinsurance, Brexit and InsurTechAway from what could well turn out to be the worst quarter on record for natural catastrophes, Kessler is keen to talk about the protection gap – not just in emerging markets but also in the more developed nations.

“The question of protection against cats has, in general, gone to the level of many boards, as this is a strategic issue. Do we have adequate covers in place to be well protected? Did we check our counterparties? Is our business continuity plan ok? And so on.

“There are still many people who remain underinsured – look at Texas, an extremely rich part of the world, and we discover [after Hurricane Harvey] that in some counties, up to 85 percent of people are not insured against flood risk. Each time there’s a big catastrophe, what we find is that the level of underinsurance – what we call the protection gap – is striking,” he opines.

“The risk awareness is growing. I expect that the demand for insurance and reinsurance will increase, both quantitatively and qualitatively.”

Kessler describes underinsurance as “a major issue to be addressed in the years to come”, noting that the solution will come from a combination of government policies on the one hand, and the efforts and commitment of the private insurance and reinsurance industry on the other.

“The protection gap is a worldwide issue, not only for emerging but also for developed countries, and it will be solved through the development of new insurance and reinsurance products, public-private partnerships, but also investments in infrastructure to increase resilience to cat events. Addressing the protection gap is a key priority for the 21st century,” he says.


Denis Kessler is one of (re)insurance’s larger-than-life characters. Here, the professor-turned-reinsurance CEO discusses the impact of a catastrophe-strewn third quarter on Baden-Baden discussions, Brexit and InsurTech

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InTeRVIeW

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15dAY 2: mondAY

InTeRVIeW

One of the great topics du jour at Baden-Baden this year will undoubtedly be the impending Brexit, and how that will affect (re)insurance relationships.

Kessler once again shoots from the hip, noting that from an economic point of view, “Brexit was an error”.

“I respect of course the choice of British citizens, but as an economist, and as the CEO of a group which operates in the UK, I have the strong conviction that this development will be negative and that its cost will be high, irrespective of what the final arrangement will look like,” he says.

“Open markets create optimal business conditions, so free trade, freedom of access and freedom of establishment are key. In order not to increase regulatory barriers – and costs – to operate and write cross-border business between the EU and the UK, it is essential that there is no divergence going forward between the solvency and prudential regimes in the EU and that of the UK.”

He notes the number of carriers that have relocated or set up offices in Continental Europe, a development which he says is a loss – and a pity – for the UK.

Scor already has a direct operation in the UK, and, in view of the uncertainties linked to Brexit, has decided to create a P&C insurance company in France to serve its continental primary clients, while maintaining the insurance company Scor UK for its other clients.

Kessler is equally as effusive on the topic of InsurTech. Scor has made considerable strides in this space. It is a founding member of blockchain initiative B3i, bought the majority of marketing and distribution platform ReMark in 2007, and recently expanded its investment in research and development by partnering with InsurTech accelerator Plug and Play.

The Scor CEO calls the recent explosion of interest a “market positive for reinsurance”, but condemns the lack of progress in this space.

“New technologies and InsurTechs are putting pressure on risk traders, as they are contesting their business model in terms of distribution and intermediation. On the contrary, the risk carrier business model is more immune to this contestability, as barriers to entry have increased dramatically, be it in terms of capital requirements, regulatory reporting or even in terms of relative profitability compared to other sectors.

“When we look at InsurTechs today, most of them are looking at insurance solutions, not reinsurance solutions. Primary insurers are trying to find new ways to access clients, or to add services – they are far more concerned with InsurTechs than reinsurers,” Kessler says.

“For reinsurance, it’s different. First it means new clients, as these new players need technical support and capital from risk carriers backing them; and second, we are extremely well placed to integrate new technologies, such as blockchain and artificial intelligence (AI), to optimise our operations. At Scor we recently held a conference on AI, which we believe will allow us to improve the way we do business and to reduce costs.”

One of the other areas where Scor is proving an innovator is Iran, as one of the first major reinsurers to re-enter the country’s reinsurance market following the rollback of EU sanctions.

“We used to be the leading reinsurance player in Iran before the US and EU sanctions were introduced. It’s a market we know well, and which we are happy to start supporting again,” he explains.

He is conscious of the uncertain geopolitical landscape, however, and adds that the policy terms of the new treaties include a clause to ensure that the contracts are fully compliant with regulations (and sanctions) at all times.

That’s amoreAs our time draws to a close, the conversation turns to Kessler’s life outside of work. Those close to him will know of his love of all things Italian: his passion for opera and classical music, and a good Campari and soda.

Indeed, when asked which his favourite city is to visit, he unquestioningly replies: “Roma.”

“I’d like to be drinking a Campari and soda with a slice of orange looking down on the Vatican.”

Interestingly, one of Scor’s lesser known investments is in a French publisher that has just acquired the exclusive worldwide rights

for the one and only book of the Pope. Italian escapes aside, Kessler is intensely

proud of his children and their academic successes. Indeed, on the day of our interview, his daughter was presenting her PhD at the London School of Economics.

Despite a four-year extension to his contract in April this year, rumours of Kessler’s future retirement date have become one of those perennial Baden-Baden discussion points.

The former economist could go back to teaching – he was happily a professor for 15 years before finding his calling in reinsurance.

One thing’s for sure: when he does finally decide to step away, this industry will certainly miss him.


“ I expect that the demand for insurance and reinsurance will increase, both quantitatively and qualitatively”

Denis Kessler biography1982-90: Director of a research team at the CNRS national scientific research centre 1985-1992: President of the Foundation for Economic and Financial Research

1988-89: Associate Professor of Economics at Nancy II University

1990-2002: President of the French Federation of Insurance Companies (FFSA)

1994-1998: President of the Economic Commission of the MEDEF, in charge of economic and international affairs

1997-98: CEO and member of the Executive Committee of the Axa Group

1998-2002: Executive vice president of the MEDEF

2000: Knight of the National Order of the Legion of Honour since 2002: Chairman and CEO of the Scor Group

since 2016: Member of the Academy of Moral and Political Sciences

since July 2016: President of the Association of Reinsurance Professionals in France (Apref )

AnALYsIs

(Re)insurance stocks climbed by 3.8 percent in the third quarter

as investors gave a vote of confidence in carriers’ balance sheets despite the onslaught of natural catastrophes that threatened to wipe out the year’s reinsurance premiums.

The Insurance Insider’s index of 50 P&C (re)insurance companies, The Insider 50, outpaced most major indices in the third quarter.

The sector beat the Stoxx Euro 600, which climbed by 2.3 percent, and was well ahead of the FTSE 100, which was up just 0.8 percent for the period.

The Insider 50 was also ahead of the S&P 500 Insurance index, which grew by 2.5 percent, and the Dow Jones US P&C Insurance composite, which climbed 1.3 percent. And it far outpaced the FTSE 350 Nonlife Insurance Sector index, which

contracted by 0.7 percent for the period.However, our index lagged behind the S&P

500, which climbed by 4.0 percent in Q3, and the Dow Jones US Nonlife Insurance composite, which was up by 4.5 percent.

That growth looks impressive against the backdrop of significant Q3 losses, which by some estimates could put 2017 among the costliest years on record for insurers.

Speaking at sister publication Reactions’ North America Re/Insurance Conference last month Jean-Paul Conoscente, president and CEO of Scor US, said the bill for hurricanes Harvey, Irma and Maria alone could total $150bn.

“The industry writes about $150bn of reinsurance worldwide, so basically we wiped out one year of premium for the whole reinsurance industry,” he said.

The winnersAmong global reinsurers, munich Re took the crown with a 2.5 percent quarterly share price increase to close September at EUR180.90 per share. However, that only made up for the ground lost when the hurricane season began to strike the US and the Caribbean. For the year to date, the German reinsurance giant was relatively flat with only 1.1 percent stock growth.

Across the border, French carrier scor posted a 2.2 percent increase in its share price to EUR35.47 in Q3 after also suffering a dent during September’s hurricane season.

Nevertheless, the company’s share price was up 8.1 percent in the year to date – the strongest growth among the global reinsurer peer group. The two reinsurers were the


Insurance stocks rise in Q3 despite losses

dAY 1: sUndAY 17

Insider 50 outpaces mostmarket indices in Q3

Beazley lags behindpeers in London

Everest Re falls to the bottom

Global insurers mostly down in the quarter

Fairfax up 16% in Q3

Brown & Brown winsthe quarter for brokers+25.3%

+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%


Q3 share price change (%)






-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley

London carriers index

Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%

-20 -15 -10 -5 0 5 10 15QBEMapfreTMKChubbAIG

TalanxGlobal insurers index

ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%

-10 -5 0 5 10 15 20AlleghanyTravelers

CNAGreenlight Re

AllstateThe Hartford

EnstarThird Point Re

Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30

Maiden HoldingsAspenHCIQBEAxis

Insider 50Brown & Brown


FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%


Novae wins the quarter while Bermudians sink

Source: The Insurance InsiderSource: The Insurance Insider




-1 0 1 2 3 4 5

FTSE 350 Nonlife Insurance Sector

FTSE 100

Dow Jones USP&C Insurance

Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500

Dow Jones USNonlife Insurance

% change


Bermuda index in the red

Markel leads US specialty insurers

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P&C insurance stocks start recovering after hurricane season

Bermuda London carriers Global reinsurers US specialty US nationwides Global insurers

900

950

1,000

1,050

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1,300

-25 -20 -15 -10 -5 0 5 10AspenAxisXL CatlinValidus Bermuda indexRenRe

Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%

-15 -10 -5 0 5 10 15AmTrustWR Berkley

ArgoUS specialty index

AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%







+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




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+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%

P&C insurance stocks start recovering after first half of hurricane season






+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




30-Jun02-Ju

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Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%

AnALYsIs

CCR ™ - Caisse Centrale de Réassurance - 157 boulevard Haussmann 75008 Paris - FranceTél. : +33 1 44 35 31 00 - http://www.ccr.fr - Société Anonyme au capital de 60 000 000 € - 388 202 533 RCS Paris

ExpErtisE you can rEly on

CCR Caisse Centrale de Réassurance CCR Caisse Centrale de Réassurance@CCR_Reassurance

www.ccr.fr

19dAY 1: sUndAY

AnALYsIs

main drivers behind the 1.0 percent rise in our Global Reinsurers index to 1,066.6 index points in Q3.

The biggest beneficiary of investor confidence was London-listed novae. Its stock climbed more than 25 percent during the quarter after agreeing to a takeover bid from Axis, which the Bermudian sweetened to £477.6mn ($644.8mn) at the end of August. Novae delisted on 3 October, making this its last appearance in The Insider 50 composite.

Fairfax was among the other industry darlings as shares in the Canadian investment conglomerate went up more than 15 percent during the period.

The third quarter was also positive across the board for brokers. Brown & Brown was the biggest winner, climbing 11.9 percent.

The losersAt the other end of the scale, everest Re closed the quarter down with a 10.3 percent decline in its share price to $228.39.

The reinsurer’s stock was climbing steadily up until mid-August, when it began to scale back as the threat of Hurricane Harvey consolidated. That led Everest Re’s share price to drop by 9.5 percent in September alone. Nevertheless, on a year-to-date basis, Everest Re’s stock was up 5.5 percent.

Hannover Re fell by 3.0 percent in the quarter to EUR101.95 per share. The company’s stock dropped by 4.6 percent in August alone. And swiss Re was relatively flat during the period at CHF87.65 per share.

In our wider coverage universe, maiden was at the bottom of the barrel as its share price fell almost 30 percent during the quarter. The main cause was a poor set of Q2 results that sent the share price crashing by more than a third in the days after they were released.

Elsewhere, shares in Aspen fell by almost a fifth in the third quarter. The share price had been trending downwards since late July, but it hit a low for the quarter in early September while Irma was bearing down on Florida, which caused the stock to fall almost 20 percent.

London languishesThe picture was more mixed for layers in London, where Lloyd’s predicted a $4.5bn loss from Harvey and Irma alone.

Hiscox shares had been on a downward path before the storms, but they rebounded and continued to rise after a provisional loss

estimate pegged the syndicate’s Harvey and Irma losses at around $225mn. The carrier finished the quarter trading up 1.8 percent.

Meanwhile, fellow Lloyd’s syndicate Beazley and its peer Lancashire were trading down by 1.8 percent and 4.5 percent, respectively.

The Bermudians appear to have suffered the brunt of the pain, with our Bermuda index down 4.2 percent in Q3. The worst-affected carrier was Aspen, which fell almost 20.0 percent, while Axis was down 11.4 percent and XL Catlin by just under 10.0 percent.








+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




30-Jun02-Ju

l

04-Jul

06-Jul

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Inde

x po

ints



900

950

1,000

1,050

1,100

1,150

1,200

1,250

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Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%

Brown & Brown winsthe quarter for brokers






+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




30-Jun02-Ju

l

04-Jul

06-Jul

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dex

poin

ts



900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300


Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%

Global insurers mostlydown in the quarter






+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




30-Jun02-Ju

l

04-Jul

06-Jul

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Inde

x po

ints



900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300


Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%

Lancashire lags behindpeers in LondonBeazley lags behind

peers in London





+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




30-Jun02-Ju

l

04-Jul

06-Jul

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26-Sep

28-Sep

Inde

x po

ints



900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300


Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%

Markel leadsUS specialty insurers






+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




30-Jun02-Ju

l

04-Jul

06-Jul

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28-SepIn

dex

poin

ts



900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300


Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%







+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




30-Jun02-Ju

l

04-Jul

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Inde

x po

ints



900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300


Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%







+1.8%

-0.9%

-1.8%

-4.5%

+2.5%

+2.2%

+1.0%








-10 -5 0 5 10 15 20 25 30

Lancashire

Beazley


Hiscox

Novae

-12 -10 -8 -6 -4 -2 0 2 4

Everest Re

Hannover Re

Swiss Re

Global Re index

Scor

Munich Re

-0.1%

-3.0%

-10.3%

+9.8%

+9.3%

+6.7%+6.0%

+4.5%

+4.4%



ZurichAxa

Generali Allianz


-1.8%

-2.0%

-5.4%

-9.9%

-15.2%


CNAGreenlight Re



Fairfax


+15.5%+12.2%

+11.9%+5.4%

+11.9%

+9.9%

+7.5%

+7.5%

+6.0%

+1.9%

+3.9%+3.6%

+3.1%-3.2%

-6.9%

0 2 4 6 8 10 12 14

JLT

WTW

MMC

AJ Gallagher

Aon

Brown & Brown


-30 -20 -10 0 10 20 30




FairfaxNovae

-28.4%

+4.5%

+4.0%

+3.8%

+5.6%

-2.8%

+2.5%

+2.3%

+1.3%

+0.8%

-0.7%

-19.0%

-18.6%

-15.2%

-11.4%

+3.8%

+11.9%

+11.9%

+12.2%

+15.5%

+25.3%







-1 0 1 2 3 4 5


FTSE 100


Stoxx Euro 600

S&P 500 Insurance

The Insider 50

S&P 500


% change




30-Jun02-Ju

l

04-Jul

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Inde

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ints



900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300


Arch


-4.2%

-5.3%

-9.9%

-11.4%

-19.0%

+9.4%+9.4%

+6.3%+5.0%

+4.4%+4.1%+3.9%

+1.5%



AFGJames River

RLINavigators

The HanoverMarkel


-3.5%-11.1%

WE GO FURTHERFOR OUR CLIENTS

By expanding our global presence and entering new markets, we can provide customised solutions across an array of geographies and products, bringing us closer to our clients.

Find out more at aspen-re.com360° THINKING

21dAY 2: mondAY

InTeRVIeW

It’s been a busy period for PartnerRe since its takeover by Agnelli family-

controlled investment company exor in march 2016.

Since then there have been a number of disposals, including the sale of a book of US excess and surplus lines and property facultative business to Everest Re in March, while the summer saw an agreement to sell PartnerRe Insurance Company of New York to Employers Group.

It’s clear that Emmanuel Clarke has been involved in a game of astute portfolio management since becoming CEO last year. Yet talking to him in the run-up to this year’s meeting, it’s clear that the immediate eyes are on the prize of what he refers to as a “pronounced correction” in market conditions after the horrendous onslaught of natural catastrophes that dominated the third quarter, particularly the US windstorm season.

“It has been a recurring topic in market meetings with clients prior to Baden and we expect this will continue,” he says. “There are two questions here: What have we learned? What impact will the US windstorm season have on market conditions?

“Firstly, I’d say that the value of reinsurance as a product has been well demonstrated, but there are now clear opportunities for the market. Firstly, there is an opportunity for clients to assess the value of reinsurance versus alternative capital products. There is also an opportunity for model validation. We’ve had some quite large events which have no doubt triggered some internal dialogues around model failure.”

Just how far this reassessment of reinsurance as a product will actually

translate into meaningful rate increases, and a lasting hard market beyond this, is the key underlying question. After all, even in the wake of Katrina, Rita and Wilma in 2005 the hard market remained frustratingly localised, and didn’t meaningfully translate over to the European windstorm renewals.

In some respects Clarke is fairly bullish here, noting that “clients

want nat cat cover, and the clear expectation in all conversations

we’ve had is that there is a resetting of conditions… 2017 has brought an end to

the number of no-cat years, and tail risk is now a closer reality”.

Yet his overall take on changes to market conditions is more measured.

“If we look at industry losses, no one is quite sure what the figure will be at the

moment, but if we take $100bn as a proximate then this is a big number

and will wipe out quite a bit of profit or capital, meaning the cost of capital from all forms of capital

will go up,” he comments. “So, expectations will be for a

pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the world.”

Yet we should not expect the emergence of a broad-based hard market, if Clarke’s take is anything to go by:

“The cat retrocession market will harden materially, and the storms will also have an impact on reinsurance rates. But as to the extent of hardening of reinsurance rates, that will vary depending on whether the account is loss-affected, as well as a degree of variation on loss-free contracts. Here at PartnerRe we have a differentiated approach to clients – every client is different.”

Despite his insistence on a differentiated market, Clarke is nonetheless keen to stress a degree of interconnectedness – at least for cat-related business:

“Our clients know that they buy internationally diversified cat capacity because it would be much more expensive if it wasn’t, so I would really caution people here who think in terms of discrete European, Japanese or Australian cat markets.

“The only way the cat market exists is that it is a global market, with clients able to buy diversified cat capacity. International diversified capital will have been hit hard this year and we expect the global cat market to react.”

Reinsurance tailA perennial question is the extent to which any changes to market conditions will be determined by the major European cedants, or by the reinsurers themselves.

Here, perhaps unsurprisingly, Clarke suggests that the reinsurance tail is indeed wagging the dog. “The big four European reinsurers have a meaningful market share in Europe as a group and are relatively hard to replace for clients,” he observes, “so all I would say here is that their approach to the market will drive the market”.

Of course, there’s more to life than obtaining a decent renewal after years of suffering. And for the reinsurance market, a major topic at the Monte Carlo Rendez-Vous this year, and one spoken about at length by the major reinsurers, concerned the issues created by the gap between economic and


Emmanuel Clarke, who is currently steering PartnerRe under Agnelli family ownership, muses on the extent of market correction, the problems of Brexit and the one area in which InsurTech could be revolutionary

de profundis

“ International diversified capital will have been hit hard this year and we expect the global cat market to react”

InTeRVIeW

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CONSOLIDATED_MONTECARLO _AD_SERIES_HQPRINT.pdf 1 8/23/17 4:02 PM

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InTeRVIeW

insured losses. Indeed, while much of the focus has

been on emerging markets, there remains significant uninsured exposure in Europe too. Is this, in Clarke’s opinion, an area that is being actively looked at – or is it all hot air and no progress?

“I guess the protection gap has been the flavour of the last few meetings, when we haven’t had quite as much to talk about as we do this year!” he jokes. “But I do think there’s been some progress here – just look at Flood Re in the UK, which contributed to bridging the protection gap.”

Clarke also says we should examine what happened in the US with Harvey, which he believes “has been a clear demonstration that US policyholders are not as well covered for flood as they should be”.

“It’s an invitation for private market participants and governments to sit down together and do something,” he says. “It’s really unbelievable that only 15 percent of Houston residents were covered for flood.”

Clarke is keen to offer practical advice here, noting there are two ways to make progress on bridging the protection gap.

Firstly, he notes, you need strong political will from governments to either back out from providing insurance, or to make specific insurance products a mandatory purchase. Secondly, he says, “there needs to be a clear will from the private market to make our products more compelling, either through distribution, customer experience or competitive pricing”.

“What I would say is that there’s an opportunity here for InsurTech to make distribution easier and client experience better. And there are still way too many cents in the dollar that are just frictional costs and get in the way of making our products compelling enough. How many cents in the dollar are just going on cost ratio?”

Is this mainly an issue for Lloyd’s and the London market though? “Definitely Lloyd’s has an issue and it’s urgent for the market to tackle it, but global insurance and reinsurance players also know this is important and there is pressure to reduce costs.”

Brexit and beyondWith the UK’s negotiations with the EU still seemingly stuck over the issues of the divorce bill and EU citizens’ rights, the London market has not lost any time in ensuring it will not suffer if, as seems likely,

the UK leaves the European single market post-Brexit.

Questions have indeed been raised as to whether it is possible to write European business successfully by fronting and fac-ing everything back to London/Bermuda. For Clarke, one thing is clear – Brexit is not exactly a welcome development:

“Brexit hasn’t been defined yet politically speaking, but there will be significant uncertainty for international business,” he comments. “There is the risk of an increase in costs because people will have to adjust their set-ups to adapt to a different and more complex regulatory landscape – making the whole market less efficient.”

For PartnerRe, which since its takeover of Paris Re has had a significant presence in Europe, and in particular Zurich, it’s not all about lamenting future inefficiencies caused by political turbulence. Indeed, Clarke suggests, the development of Zurich as a hub has in many ways been a positive force:

“With more reinsurers in Zurich it does create a marketplace, so for brokers and clients, being a concentrated market makes it easier and more efficient.

“But on the negative side it has pushed up compensation inflation as the availability of specialised talent is limited, so there is a little bit of a musical chairs game. Overall, it also keeps increasing the number of players interested in European business, despite the fact that the margins are at an all-time low.”

InsurTech is the buzzword of the moment – indeed Clarke has already mentioned it himself during our earlier protection gap discussion and our line of questioning naturally turns back in this direction.

PartnerRe and Axa recently announced a link-up with AI-driven InsurTech and data firm RemitRadar to tackle the protection gap for uninsured migrant workers.

RemitRadar acts as price comparison site for online money transfer services. Its insurance proposition is to sell life and workers’ compensation policies to these workers, with the company acting as a digital distribution platform for global insurers. The premiums – which can be as

low as $10 for a simple life policy offering a $3,000 indemnity – would be paid by money transfer websites in exchange for customer loyalty.

Much is made of projects such as these in the wider market, with talk of InsurTech initiatives eventually revolutionising the market. Is Clarke as convinced?

“When I think about InsurTech I think about three main areas: distribution and client experience; data analytics; and the efficiency of operations.

“So, in terms of distribution it has the potential to be more revolutionary. For data analytics, it’s about continually improving and managing our risk selection better. In terms of the efficiency of operations, it’s about lowering the costs of production and it’s definitely more evolutionary, as technology has helped bring more efficiency to our operations.”

Brokers beware!


“There are still way too many cents in the dollar that are just frictional costs and get in the way of making our products compelling enough” Emmanuel Clarke biography

educationv Master’s degree in Business

Administration from the University of Paris, IX – Dauphine, specialising in Finance and Controlling

v MBA in International Business from Baruch College of CUNY

Careerv 1997: Joined PartnerRe in 1997 with

the acquisition of SAFRv 2001: Appointed head of credit and

surety, global, later becomes head of property and casualty, global and then head of specialty lines, global.

v 2010: CEO, PartnerRe Global, responsible for global non-life operations outside North America, as well as the company’s life and health operations worldwide.

v 2015 President, PartnerRev 2016 Also becomes CEO, PartnerRe

otherv Clarke currently serves on the

Insurance Europe Reinsurance Advisory Board, is on the board of directors of the Association of Bermuda Insurers and Reinsurers and is a member of the Geneva Association

FOCUSED PROTECTION.ALWAYS.

46300IGI Brochure cover resize AW.indd 1 10/05/2017 13:06

BIG QUesTIon: BUYInG HABITs

With rates competitive by historical standards, do you expect to see additional cover purchased at 1 January?

Jorg Bruniecki, head of global clients and broker management, PartnerRe

The perceived value of reinsurance has definitely increased. Volatility in results is not viewed favourably by capital markets, more so at times of thin margins overall. Equally, rating agencies are putting a focus on earnings stability.

Cedants will be looking at how to best protect their results. Reinsurers that can take a five- to 10-year view are best placed to help their clients take the volatility out of their balance sheets, provided they get paid for it adequately.

Charles Whitmore, managing director, head of placement solutions group, Guy CarpenterWe expect to see cedants wanting to purchase additional reinsurance for a variety of reasons, not just opportunistically to take advantage of the competitive trading conditions. Another key driver of increased purchasing is regulatory (Solvency II in Europe), and we also think the frequency and severity of recent hurricane events might prompt buyers to lower retentions and purchase additional vertical cover.

Jean-Jacques Henchoz, Ceo of reinsurance emeA, swiss ReThe expected catastrophe losses in 2017 and their severe impacts on the industry’s earnings and capital basis suggest that we’ve

reached the bottom of the cycle and prices may harden globally.

Nevertheless, some insurers may come to the conclusion that they need or want to further protect their net earnings with additional reinsurance coverage for both frequency and severity protection. We are already in discussions with some of our longstanding clients about adjusting their current reinsurance structure.

david Flandro, global head of analytics, JLT Re We have been watching this trend closely for about 15 years now. The insurance sector’s cession rate (ceded divided by gross premiums) reached a trough in 2014 and has been slowly rising ever since. We think this trend will continue at 1 January.

Torsten Jeworrek, reinsurance Ceo, munich ReIt is normal procedure that insurance companies review their reinsurance programme after the sort of events we saw recently. There might be an increase in demand for reinsurance. But in the end it is an individual decision if they want to buy at the prices available.

Alkis Tsimaratos, managing director, head of emeA W/s, Willis RePotentially yes, but not due to competitiveness of rates. The current Q3 US loss environment and historical loss environment in Europe is advocating for more aggregate covers or second retention sublayer ones.

However, for most, securing the existing coverages at acceptable terms for all parties is probably the main focus that we are seeing at the moment.

There have been limited signs of increased use of Qs cover – sometimes at the expense of XoL – as primary rates worse. do you expect that trend to pick up pace at 1.1?

Tsimaratos:Yes, we do see QS coverage being used tactically by players that have been historically using this as part of their reinsurance strategy. QS use is further supported by a relatively active MGA market in the UK, but also other places. That trend is disconnected to the current XoL market conditions and is likely to continue at 1 January. Lastly, we also continue to see quota shares being deployed as capital relief structures, alongside sub debt and legacy/reserve protections.

Henchoz:Currently, we expect that the primary markets will also harden so we don’t expect to see material additional demand for conventional pro-rata business.

Whitmore: QS reinsurance is an effective hedge against inadequate original rates, but only as long as the reinsurer on the other side of the deal is receiving terms that make sense to them.


As the European reinsurance market descends once more on Baden-Baden, leading market executives debate quota share (QS) versus excess-of-loss (XoL), and whether the Q3 cat losses could prompt an increase in the amount of cover being bought

dAY 1: mondAY 25


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But overall yes, we do anticipate an increase in the utilisation of QS reinsurance as original rates worsen.

Jeworrek:Regarding our book, we saw increased appetite for quota shares in US casualty at our last 1 January renewal. Nevertheless, we regard this as segment-specific and would not talk of an overall trend.

Is aggregate reinsurance a core reinsurance purchase for most cedants now after years of increased buying? And will we again see more purchased at 1.1?

Bruniecki:As long as buying motivations remain the same, there should be no fundamental change. The recent events, however, will cause many buyers to review their strategies. Conversations with clients have shown that they value covers that protect them from exposure to multiple events, and consideration of aggregate or even additional reinstatements will continue to be of interest.

Flandro:I would say aggregate cover is a core tool for most buyers, who can use it to design optimal structures. It remains to be seen whether the increase in aggregate covers will continue at 1.1, although there are very good reasons for cedants to consider it.

Whitmore:Aggregate reinsurance has become more popular in recent years as a means of protecting against earnings volatility, and the continuing earnings squeeze has meant that aggregate has formed an integral part of cedants’ protection landscape.

Jeworrek:So far, we have not seen any development in terms of demand changes for aggregate reinsurance covers. Munich Re offers all kinds of different solutions. In each case, we individually discuss with each client which solution is best suited for a specific situation.

Tsimaratos:Yes, alongside the cat XoL, aggregate is core and the core is in the agg – both property cat aggs and multi-line aggs are now cornerstone covers in many clients’ strategies.

Interestingly most cedants that have moved into the aggregate protection space in the last 10 years have those strategies in place, evolving them year-on-year according to their group risk and retention appetites. This remains a fundamental trend and more such covers are being explored. The current market conditions across all lines offer a good timing opportunity to rethink parts of the programmes along those lines.

Has the trend towards centralisation of reinsurance spending come to a halt? Is it going into reverse?

Tsimaratos:We don’t think so. More than coming to a halt or reversing, the centralisation strategies are maturing. As companies are getting a better grasp on their risk appetites and requirements, the use of internal vehicles is being deployed with more business acumen – alongside the financial rationale that they absolutely provide.

Hence, groups are becoming more tactical at using intra-group vs extra-group, with better-informed decisions and trade-offs between open market use, local or global, and own retention.

Henchoz:These issues are a feature of good capital management by our clients. It’s a logical market progression that will continue to some extent. However, an interesting feature of the last 12-24 months are the signs of market fragmentation, where drivers such as capital standards and the regulatory environment are leading companies to split and/or become more local. It will be interesting to see how this emerging trend develops.

Bruniecki:It comes down to what you think is the most effective way to run your business. Reinsurance can help in manifold ways – not just as a capital relief instrument. As a

CEO, you have to achieve capital market expectations so if your investors have an appetite for volatility and understand the drivers for it, you will not have to buy below the group risk appetite.

What you want is to make sure that your risk appetite as a group is right for the opportunities that present themselves. Cycles everywhere are becoming shorter and less pronounced. Missing hardening markets because you are hesitant will make you less likely to outperform the market.

Flandro:I wouldn’t say it’s come to a halt or going into reverse; it has simply been undergoing a re-assessment since about 2015. Sometimes it can be more economical and efficient to undertake standalone purchases for certain classes of cover and lines of business, especially regionally, and especially when rates are as low as they have been.

This is not to say consolidation does not have its advantages such as economies of scale, it’s just that economies of scope can be broadened with regional purchases.

Whitmore:The centralisation of reinsurance via intra-group reinsurance vehicles has surged in recent years, and most of this activity has come from the larger insurance groups which have wished to capture the cross-class diversification benefits available to them under the current capital regimes.

These vehicles have been designed to withstand the vagaries of the reinsurance cycle, and we therefore anticipate that they will remain in place in the coming years. Notwithstanding this, many large insurers are also evaluating their needs around the protection of volatility and we have noticed an increase in the reinsurance purchased.

Jeworrek:After a number of years, the level of centralisation and intra-group reinsurance that conglomerates use has reached a high and stable level. Nevertheless, we also see that even international companies additionally make use of local/regional buydowns and tactical treaties to bridge critical situations or for reasons of capacity and balance sheet strength.


Charles WhitmoreManaging director, head of placement solutions group, Guy Carpenter

Jörg BrunieckiHead of global client and broker management, PartnerRe

david FlandroGlobal head of analytics, JLT Re

Jean-Jacques HenchozCEO reinsurance EMEA, Swiss Re

Torsten JeworrekReinsurance CEO, Munich Re

Alkis TsimaratosManaging director, head of EMEA W/S, Willis Re P HOW TO BOOK YOUR PLACE…

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TRAdInG RIsK

Cat bond market prices had been written down by 5.3 percent by

mid-october after hurricanes Harvey, Irma and maria, as multiple insurance-linked securities (ILs) transactions were expected to respond to the disasters.

However, to date the largest known ILS loss this year came from the recent Mexican earthquakes. And rather than the deadly Mexico City temblor that has caused extensive (re)insurance losses, it was the earlier, larger, but offshore quake that produced a $150mn ILS market hit.

This came from a World Bank-sponsored parametric cat bond benefiting Mexican disaster scheme Fonden. It is the second ILS payout for the fund in as many years after it received a $50mn partial payout under its prior ILS transaction as a result of 2015’s Hurricane Patricia.

Writedowns on hurricane-exposed bonds have been more extensive, however.

The Swiss Re global cat bond price return index dropped 5.3 percent over the six weeks from 1 September, when it recorded a value of 94.77, to reach 89.75 on 13 October.

But the market has regained some value after plunging by 15.4 percent while Irma was heading towards Miami, in what was the largest drop since the ILS index began in 2002.

The 2017 writedowns correspond to the size of the declines posted in the year of Hurricane Katrina, although in that case price falls were more gradual as the index lost roughly 6 percent of its pre-Katrina value over the second half of the year.

At a deal-specific level, Aon Securities data showed that about $1.67bn of cat bonds – or around 6.5 percent of the $25.8bn market, as of 30 June – had been marked down by 25 percent or more.

Of this total, Florida-only bonds accounted for $159.8mn while aggregate bonds amounted to $1.52bn, Aon Securities CEO Paul Schultz said during the recent Trading Risk New York Rendez-Vous.

Payouts to watchThe wind-exposed cat bonds on watch as a result of the HIM storms are made up of both small, high-risk layers sponsored by Floridian carriers and annual aggregate cat bonds.

For the most part, the latter provide industry loss-based retrocession cover for

international reinsurers, although some aggregate layers of Residential Re deals for insurer USAA have been marked down.

Two bonds that have been written down on ILS broker-dealer pricing sheets to reflect a possible full loss are the $20mn Class C layer of Florida insurer Safepoint’s Manatee Re 2016-1 cat bond, and the $150mn Atlas IX Capital 2015-1 class A cat bond issued by Scor.

The latter is one of a handful of ILS deals to include exposure to Puerto Rico alongside US coverage.

As reported in the latest edition of Trading Risk, conservative industry losses of $20bn apiece for Texas and Florida, combined with a $22.5bn loss for Puerto Rico, would be enough to trigger the Atlas notes.

Using these industry loss assumptions, the claimable losses would reach $697mn above a $650mn attachment point, suggesting a $47mn loss for investors in the bond.

But while one pricing sheet put the layer as low as 5 cents as of 13 October, bids ranged as high as 30 cents, suggesting there is still ambiguity around the size of the anticipated claim.

Other deals that were marked down below 50 cents on average as of 13 October included a small class C tranche of the Casablanca Re cat bond for Avatar; a multi-year aggregate Blue Halo deal benefiting Allianz Risk Transfer; a private Citrus Re layer issued this year for Heritage; and one of the Integrity Re layers for American Strategic.

Pricing indications also vary hugely on some of the Galileo/Galilei bonds for XL – with some firms marking one layer at 35

cents and others at up to 75 cents – and to a lesser extent for some of the Kilimanjaro Re deals for Everest Re.

In the same conservative industry loss scenarios described above, Trading Risk analysis suggests partial payouts of potentially $40mn from the recently issued high-risk class A layers of the Galilei Re 2016-1 and 2017-1 deals, and potential claims under two earlier Galileo Re cat bonds issued in 2015 and 2016 as well.

Writedowns reflect changed environmentFalling cat bond prices in the wake of hurricanes Harvey, Irma and Maria have already pushed ILS yields up by 15-25 percent, according to the Lane Financial rate-on-line index.

The mark-to-market losses across all bonds, including those not impaired, wiped around 10 percent or $2.5bn off the value of the outstanding $25bn market, based on pricing bids at the end of September.

Lane said that the full extent of these writedowns may never be realised, as the non-impaired bonds would likely mature at par value.

“The current downshift in the market expresses the view that the next issue of similar bonds will be issued at higher yield,” the firm explained.

In 2005, Lane’s rate-on-line index more than doubled from a value of 75 to 175.

In the third quarter the index moved up by around 14 percent, from 91.7 at the end of June to a “quite speculative” 104.5 at the end of September, Lane said.

HIm cat bond slide matches Katrina downturn

dAY 2: mondAY 29

Cat bonds bounce back from HIM storms

70

75

80

85

Inde

x va

lue 90

95

100

14/07/2

017

21/07/2

017

28/07/2

017

04/08/2

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11/08/2

017

18/08/2

017

25/08/2

017

01/09/2

017

08/09/2

017

15/09/2

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017

29/09/2

017

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017

13/10/2

017

Cat bonds bounce back from HIM storms

Source: Swiss Re Capital Markets, Trading Risk

dAY 2: mondAY30

eVenTs

mAnAGInG dIReCToRMark [email protected]

edIToR-In-CHIeFAdam [email protected]

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The London market Conference 20172 november 201708:15-19:00etc. Venues, Liverpool Street, 155Bishopsgate, London, EC2M 3YDwww.insiderlondonmarketconference.com speakers include:Bruce Carnegie-Brown, Chairman, Lloyd’sGreg Case, President and CEO, AonStephen Catlin, XL CatlinSteve Hearn, Group CEO, Ed. #InsiderLmC

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oPInIon

31dAY 2: mondAY

InsurTech’s impact on the insurance industry is surging, reminding us of the

influence that technological change and growth bring to the modern consumer and business landscapes and individual industries — the development of Fintech within financial services being an example.

To gain the advantages promised as InsurTech offerings proliferate, companies need to know the opportunities afforded; know their own strengths and capabilities for engagement; and know their clients’ needs and expectations.

The right InsurTech investment decisions can bring potential value-add opportunities to many areas including the Internet of Things (IoT), infrastructure, artificial intelligence, robotics, machine learning and data ingestion.

Similarly, fundamental aspects of insurance operations – claims, underwriting, policy administration, customer experience, operations, call centres and marketing – have all been influenced by the exponential rise of technology. InsurTech has significant potential to be deployed as part of a business model where companies have deeper “touchpoints” with consumers.

The InsurTech marketplace is expanding through new start-ups and existing companies that are gaining a deeper understanding of both the incremental and the transformational potential of InsurTech. Its reach is increasingly broad and is the evolutionary next step for insurance through the combination of data, analytics and technology (DAT) in new and innovative ways.

DAT supports services and capabilities that allow the industry to more efficiently and effectively drive down costs and increase client value. The most valuable InsurTech capabilities incorporate all three components of DAT in order to:

v More effectively use available data;v Create new insights through advanced

analytics; andv Serve output to users through mobile-

enabled technology.

Is data the hard part?In many ways, the proliferation of data across the modern, connected landscape has driven more innovation than either analytics or technology. Is “having” the data a key consideration for InsurTech markets

and the larger insurance ecosystem? Some data sources are publicly available and easily accessible, while others are clearly proprietary – such as driver behaviour captured through a vendor’s telematics application. Capturing information in real time through sensors or mobile devices is the newest process for the collection of data for analytics.

While start-ups do not have a long history of data, their nimbleness and creativity allow them to collect rich data quickly. Some of these firms are collecting new data through their own applications. With

sophisticated analytics, they can also mine the data more effectively to find nuggets of insight that drive solutions. The mining of this data is just one of the ways InsurTech firms will gain a foothold in the larger insurance community.

What should carriers be doing?One success factor for companies is the ability to identify partnerships and make investments that leverage a firm’s key capabilities and recognise shortcomings that could threaten strategies and growth. To do that, it is critical for companies to understand their own DAT footprint and capabilities and how company-specific DAT capabilities relate to broader InsurTech trends. This understanding highlights capability gaps and allows strategic direction to be set for a company to move toward desired products and services.

The challenge is that the broader trends are increasingly dynamic– the targets for “best in class” and even for customers’ minimum expectations are being redefined constantly. Companies must find ways to monitor constantly and accelerate their responses to market shifts.

Compelling trends for growthInsurTech funding has increased by 65 percent per year in terms of investment

dollars and has risen 44 percent per year based on the number of deals between 2011 and 20161.

Given the exponential rise in interest in this space, participating companies would benefit by focusing on areas with the most potential for success and value-add within the insurance ecosystem. Providers and start-ups have proliferated, each with a unique capability for leveraging DAT. Several that received the most funding and attention leveraged all three pillars to create a compelling business case for investment.

The space is naturally dynamic and influenced by many factors outside its control. For example, there is a natural interest in cyber-related risks and how to identify, quantify and control them. Several new start-ups profess strong capabilities in distilling this complex risk area into digestible pieces for insurers and their insureds.

With cyber perils and exposure still an emerging risk, it is difficult to determine which vendors will be the winners and which the losers. Deciding which capabilities will meaningfully impact business and which vendors can deliver them requires careful consideration and will be a necessity for keeping pace with or staying ahead of the competition.

For companies seeking profitable growth, expanding the cyber scenario into potentially all other risk areas and “saying know” to InsurTech is critical to avoiding missteps and making the right investment decisions.

Just say ‘know’ to InsurTech

“The challenge is that the broader trends are increasingly dynamic– the targets for ‘best in class’ and even for customers’ minimum expectations are being redefined constantly”

1CB Insights “Insurance Tech Start-ups Raise $1.7bn across 173 Deals in 2016,” 5 January 2017

Claude YoderGlobal Chief Innovation and Product Development Officer, Guy Carpenter & Company

ADAPTATIONThe rapidly expanding development of technologies and operating models across the insurtech landscape presents both challenges and opportunities to our clients at an increasingly accelerated rate.

Guy Carpenter is delivering innovative solutions around new digital capabilities that allow our clients to adapt, evolve and grow in new ways.

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