July 23, 2020

by Will Dove

The risk of trapped collateral has long been a known feature embedded into cat bonds and other ILS structures. It is a real, though often unpriced, impediment to returns. Sponsors have held back billions of dollars on expired transactions because of potential exposure to known loss events. Such risk can, however, manifest even in short-tailed lines. Almost three years after Hurricane Irma, the “loss creep” is still significant.

In 2020, ILS contracts face new unpriced risks of trapped collateral: litigation around business interruption claims on commercial property insurance policies and legislation and regulatory actions in many states that have the effect of tolling statutes of limitations for filing claims as long as the emergency declarations caused by the pandemic remain in effect. If, as predicted, 2020 brings major hurricanes to the US, investors will see large amounts of capital trapped at the end of the year, potentially even more than the $20 billion experienced at the end of 2017.

In the past, investors had limited options to address trapped collateral issues following an event. Holders of 144A cat bonds could request dealer quotes, but a limited number of dealers, a thin secondary market, and wide bid/ask spreads often combined to make these quotes unattractive. Investors in private ILS had even fewer options short of asking a sponsor or fronting reinsurer to provide a commutation -- equivalent to seeking to trade with only one potential bidder.

A liquid market place--such as exists for swaps--changes long-term risk of adverse development into short-term risk of price fluctuation. In an active market, capital is not trapped. In an active market, capital is always finding its best use. Now, this can be done for insurance liabilities.

Extraordinary Re has built a unique and innovative platform combining the best features of a traditional reinsurer, transformer vehicle and a trading exchange. With an account at Extraordinary Re, ILS investors can deploy their capital with greater precision, timing, granularity and flexibility. Investors can select specific contracts, or even segments of contracts, to add to their portfolios. And investors can engage in secondary trading to manage their portfolios, including the ability to sell and cleanly exit any risk position using a familiar bid-matching protocol.

The time to address the risk of trapped collateral is at contract inception, not following a loss. Investors with the foresight to access insurance risk through Extraordinary Re will reap benefits to their portfolios through added investment flexibility, enhanced transparency and price discovery, and will reduce the exposure to trapped collateral.

The current reinsurance market offers more attractive pricing, terms and conditions than have been seen in years. Astute, long-term investors will also seize the opportunity to achieve permanent structural improvements in the ILS market. Such improvements are a hallmark of successful financial innovation, which has been missing from the insurance market until recently.

Extraordinary Re is ready to launch operations and become a new focal point for the ILS market. We welcome the participation of investors who share our vision and are ready to capitalize on this moment. Carpe diem!

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June 9, 2020

by Will Dove

ILS assets have delivered growth, performance and diversification to investors over the past two decades despite an absence of real liquidity and antiquated investment structures that can result in trapped collateral and lack of transparency. In today’s hardening reinsurance market, with prices going up and capacity being withdrawn, ILS investors have more leverage than ever to demand permanent improvements to the structure of the market in addition to those possibly short-lived pricing increases.

Extraordinary Re was created to address the shortcomings of today’s market. The current state of the reinsurance market presents an opportunity for investors to realize lasting improvements far more valuable than a short-term increase in rate on line for catastrophe reinsurance. By deploying capital through Extraordinary Re, institutional investors can work together to create a dynamic marketplace featuring:

• contract-level trading liquidity;
• price discovery far more timely and transparent than the annual reinsurance renewal process;
• and for investors with diversified portfolios, the ability to benefit from operating leverage.

The insurance industry is more dependent than ever on reinsurance support from the ILS market. Investors can expect to see greater demand for capital and opportunities to earn attractive risk-adjusted returns going forward. Now is the time to implement meaningful and lasting changes in how capital is deployed, valued and managed. Don’t let this crisis go to waste!

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February 28, 2018

by Will Dove

The severity of the recent data breaches at Equifax — in which personally identifiable information on over 143 million US consumers was stolen by unknown hackers — and the US Securities and Exchange Commission — whose Edgar database processes over 1.7 million corporate filings per year — underscores the enormous issue of cyber risk.

Over time, free-market economies have evolved ways to manage a variety of risks through the use of insurance. But the complex, ever-changing, and expanding nature of cyber risk has exceeded the insurance industry’s ability to serve those who seek protection. No standard insurance coverages or contract wording have yet evolved, and the historical data available to insurers that’s required to create actuarial pricing models are paltry. Even if such data existed, it would have limited predictive value due to the dynamic nature of the risk, as hackers constantly develop new methods to evade security and more and more of our intellectual and physical assets become interconnected through the Internet.

Despite these limitations, Cyber risk insurance has become the fastest growing product in the property-casualty insurance industry. Annual global insurance premiums in the category are estimated to be $3 billion and projected to grow to $10 billion over the next several years, and perhaps to $20 billion over the next decade.

The nature and scope of cyber risk is rapidly changing. Like a cancer or a new kind of virus, the cyber threat metastasizes and evolves to exploit weaknesses and opportunities. The growth in demand and rapid change of cyber risk strains the capacity of insurers to carry the new risk. Since demand seems likely to exceed supply for the foreseeable future, a new approach is needed. That new approach will likely be grounded in the creativity of insurance innovators to develop vehicles through which the risk burden — and profit potential — can be spread beyond the insurance industry to tap into deeper pools of capital. The capital markets are great for this kind of creativity, as evidenced by the creation and development of asset-backed securities markets over the past 40 years, which brought liquidity to markets for mortgages, credit cards and auto loans.

The insurance industry, where reinsurers historically have served as the ‘lenders of last resort,’ has also seen the emergence of capital market solutions to manage accumulations of risk. These have taken the form of so-called ‘alternative capital’ products that have enabled hedge and pension funds to assume property reinsurance risk through catastrophe bonds and similar vehicles. In recent years, these products have served to dramatically decrease the cost of capital in the catastrophe reinsurance market while creating a high-yielding investment opportunity whose returns are uncorrelated with equities or interest rates.

At our firm, Extraordinary Re, we have built a trading platform for insurance risk, initially targeting ‘extraordinary’ risk classes such as cyber. By embedding our trading platform inside a reinsurance company, we sit between the insurance and capital market worlds, enabling insurers to transfer accumulations of risk to institutional investors in the form of tradable reinsurance. This innovation allows investors to assume risk in a liquid market with the ability to control the amount and types of risk and the timeframe over which that risk is carried. That permits the allocation of capital in a more flexible manner than is possible in the insurance industry, which takes a ‘buy and hold’ approach to underwriting risk.

The creation of this risk-transfer market produces a new source of data that will provide new benchmarks for pricing and valuation, leading to new product development efforts among the insurance companies originating the risk. Such an information feedback loop is particularly valuable for dynamic types of risk such as cyber, where investors’ trading responses to real-time changes in the risk environment (including changes identified using new data sources and analytics) are likely to have far more predictive value than any historical data set.

Former Secretary of Homeland Security Tom Ridge commented earlier this year that cyber risk is now a major permanent condition facing our digital world. The damage from the Equifax and SEC breaches further evidences that risk, and dramatizes the societal need to do something about it.

While there is no way to eliminate cyber risk, there are ways to reduce, mitigate and transfer it through cyber insurance. But only the global capital markets can provide the resources of liquidity and expertise to value and manage such complex risk. If the track record of 300 years of capitalism has taught us anything, it’s that a liquid trading market is the best mechanism for allocating capital and pricing risk in a dynamic and changing environment.

William Dove is the CEO at Extraordinary Re, a company that is working to unlock existing liabilities on insurance company balance sheets by creating a marketplace to trade those liabilities.

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February 28, 2018

by Will Dove

Summary:

It produces a new source of data that will provide new benchmarks for pricing and valuation, leading to new product development efforts.

In recent months, we have witnessed a series of significant events producing large — and mostly uninsured — economic losses. The Equifax data breach exposed personally identifiable information from more than 140 million consumers; there were tens of billions of dollars in flood losses from Hurricanes Harvey and Irma; and the damage costs from long-term power outages and business interruption losses stemming from Hurricane Maria’s devastation in Puerto Rico are still being calculated. All those underscore the low level of insurance penetration for perils like flood, cyber and contingent business interruption even in the U.S., one of the most highly insured economies in the world.

Spurred by the growth of new technologies, the advent of new business models reliant on increasingly complex supply chains and the dynamic forces of climate change, emerging risks such as these have become increasingly important to consumers and businesses around the world. At a recent industry gathering, Mike McGavick, CEO of XL Catlin, asked how the insurance industry can remain relevant to its customers when it has seemed unable to develop insurance products to protect against some of the most critical risks facing policyholders in our modern, connected economy.

It is an important question.

While the insurance industry’s development of new products has typically lagged in the changes in technology and risk environment that drive demand for protection, the wave of new products, business processes and companies from insurtech startups can help insurance industry incumbents to accelerate their response to a changing risk environment. There are three categories of insurtech innovation that will be critical to this evolution: data, analytics platforms and tradable risk.

Over time, free-market economies have evolved in ways to manage a variety of risks through the use of insurance. But the fundamental nature of emerging risks has challenged the insurance industry’s ability to develop new insurance products and price those products using historical data that actuaries typically rely upon to parameterize their pricing models. Even if such historical data existed, it would have limited predictive value for emerging and changing risks such as cyber because of the dynamic nature of the risk, as hackers constantly develop new methods to evade security and more and more of our intellectual and physical assets become interconnected through the internet. And the forces of climate change are quickly rendering historical data sets obsolete — even for classes of risk like hurricanes that have been considered to be well-understood.

A number of innovative companies, both insurtech startups and a few more established enterprises, are building new platforms and data collection modalities designed to enhance the amount, granularity and quality of underwriting data for a broad range of traditional and emerging classes of risk. Companies like reThought Insurance (US flood insurance MGA), Audeamus Risk (a platform for managing and underwriting operational risk) and both Cyence and Symantec in the cyber risk area are collecting unprecedented amounts of data, including new data elements that can provide real-time indicators of changes in risk profiles in these areas. Other new technologies including sensors, wearables, telematics and social media networks can capture types and quantities of data far beyond what insurers have used to set premium rates and loss reserves. These new datasets can provide insurance and reinsurance companies with more extensive amounts of data and real-time information, allowing a carrier to track and monitor its policyholders with far more timely and actionable information than has previously been available.

Increased quantity and quality of exposure data is a prerequisite to insuring emerging risks, but making sense of this tsunami of data requires other forms of innovation. Developments in artificial intelligence and machine learning provide new tools that can allow insurers and investors to filter vast data sets to isolate the variables with the most predictive value in signaling relationships between exposure and claim activity.

But improvements in data collection and analytics alone are not sufficient to provide the risk-bearing capacity needed to accommodate emerging risks with the sheer volumes of exposure to loss of flood, cyber and contingent business interruption. A new approach is needed to develop vehicles through which the risk burden — and profit potential — can be spread beyond the insurance industry to tap into deeper pools of capital. The capital markets are great for this kind of creativity, as evidenced by the creation and development of asset-backed securities markets over the past 40 years, which brought liquidity to markets for mortgages, credit cards and auto loans.

Since the 1990s, the insurance industry, where reinsurers historically have served as the “lenders of last resort,” has seen the emergence of capital market solutions to manage accumulations of risk. These have taken the form of so-called “alternative capital” products that have enabled hedge and pension funds to assume property reinsurance risk through catastrophe bonds and similar vehicles. In recent years, these products have served to dramatically decrease the cost of capital in the catastrophe reinsurance market while creating a high-yielding investment opportunity whose returns are uncorrelated with equities or interest rates.

At Extraordinary Re we have built a trading platform for insurance risk, initially targeting “extraordinary” risk classes such as cyber and flood. By embedding our trading platform inside a reinsurance company, we bridge the insurance and capital market worlds, enabling insurers to transfer accumulations of risk to institutional investors in the form of tradable reinsurance. This innovation allows investors to assume risk in a liquid market with the ability to control the amount and types of risk and the timeframe over which that risk is carried. That permits the allocation of capital in a more flexible manner than is possible in the insurance industry, which takes a “buy and hold” approach to underwriting risk. It will even become possible for different investors to hold shares of a single reinsurance risk at different points in the lifespan of that risk between policy inception and the date when the last claim is settled. A trading market allows risk to be allocated to the most efficient (and lowest cost) capital provider throughout the term of each risk.

The creation of this risk-transfer market produces a new source of data that will provide new benchmarks for pricing and valuation, leading to new product development efforts among the insurance companies originating the risk. Such an information feedback loop is particularly valuable for rapidly changing types of risk, where investors’ trading responses to real-time changes in the risk environment (including changes identified using new data sources and analytics) are likely to have far more predictive value than any historical data set.

Only the global capital markets can provide the resources of liquidity and expertise to value and manage emerging risks. If the economic history of capitalism has taught us anything, it’s that a liquid trading market is the best mechanism for allocating capital and pricing risk in a dynamic and changing environment.

About the Author

William Dove is chairman and chief executive officer of Extraordinary Re. He has 28 years of experience in the property/casualty insurance and reinsurance industry as an actuary, an underwriter and a senior executive with leading companies.

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February 28, 2018

by Christopher Blum

The world doesn’t seem to be a friendly place for startup reinsurers.

There is a staggering amount of capacity in the reinsurance and insurance-linked securities (ILS) markets – $420 billion according to some experts. By all accounts rates have been soft for years, and get softer year over year.

Reinsurers for the most part maintained profits in 2016, but predominantly through lack of large U.S. catastrophe losses, capital management tactics, and by being able to take advantage of favorable development on older business rather than through rate growth or new sources of reinsurance premium.

Potential new sources of reinsurance premium are out there, but the so-called ‘coverage gap’ yawns wide. Earthquake and flood elements of traditional property coverage and parametric risks are difficult to underwrite, at least in part because reinsurance coverage is hard to come by for those catastrophic risks; cyber insurance is a coverage that becomes more necessary to businesses daily, yet reinsurers have so far been unable to offer significant capacity.

ILS markets may close some of the coverage gap, as they take advantage of capital market desire for returns uncorrelated to traditional investment markets, but ILS issuance requires a process that can be time-consuming and inefficient and which results in a security that is relatively rigid in that it doesn’t allow trading and re-trading of risk once placed, with limitations on returns and potentially catastrophic risk to capital.

All of this indicates that a startup planning to break into the market as a plain-vanilla reinsurer has the odds heavily stacked against it. However, there is a huge world of un- or under-reinsured risk out there that could support a next wave of reinsurance solutions. So, any startup reinsurer that wants to make it big needs to answer a couple of related questions: how will the model deepen and broaden what can be reinsured, beyond what traditional reinsurers can do? How can one combine the best features of traditional reinsurance and ILS issuance to evolve the reinsurance business to today’s needs?

Extraordinary Re's response to these questions is to:

1. use familiar mechanics of reinsurance cession, claims handling, and other operational aspects to the greatest extent possible;
2. create a model that entices all kinds of capital, from insurance experts to hedge funds to financial instrument and commodity traders to institutional traders like pension funds, to invest in and bear reinsurance risk;
3. broaden the ability to take on difficult-to-price risks, by combining insurance and trading expertise and willingness to take risks, to benefit insurers and intermediaries rather than compete with them;
4. provide real-time ability to take-on and lay-off risk, from binding as it develops through resolution of reinsured risk, evolving beyond current ILS models. Our model complements the infrastructure of a standard Bermuda reinsurer with an internal mechanism that slices up reinsured risk and enables capital markets investors to take on or lay off as much or as little risk as they choose, on a day-to-day basis, as it develops.

The reinsurance industry plays a critical role in the global economy by sharing in the accumulations of peak risks from the retail insurance companies who serve individuals and businesses. Traditional reinsurers have filled that role by using historical data to price risk and hold it on their balance sheets. However, growth in global economies and new technologies have created emerging risks (think of cyber risk) that don’t fit the traditional models. Extraordinary Re is one of the companies addressing this challenge, and its new model of allocating risk to investors through a trading platform is ready to permanently change the insurance risk transfer market.

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September 19, 2023 - New York

Extraordinary Re (!Re) today announced that Oakley (Lee) Van Slyke has resigned as President and Chief Executive Officer of Extraordinary Re and as a Director of the company with immediate effect.

About:

Extraordinary Re is a platform for the daily trading of insurance assets and liabilities. The company offers solutions for traders and institutional investors, along with insurance companies and intermediaries.

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April 13, 2022 - New York

Extraordinary Re (!Re) today announces that it will be demonstrating its platform for trading interests in insurance contracts on April 29, 2022, at 10:30 a.m. EDT. The demonstration, by invitation only, is for asset managers and asset owners. For an invitation, please contact Joe Rosen at Joe.Rosen@XReHoldings.com or +1 347 647 0530.

Extraordinary Re’s secondary trading platform will enable asset managers and asset owners to build customized portfolios of insurance contract positions just like they would with stocks and bonds. The platform opens the $20 trillion universe of insurance liabilities to direct contract-level participation by the capital markets.

The demonstration of the trading platform on April 29 is a significant next step in the evolution of insurance finance. “The new asset class of insurance contracts will be valuable to investors of all strategies,” said Lee Van Slyke, CEO of !Re. “All portfolio management strategies may benefit, from value investing to technical analysis to buy-and-hold. Among the values to the investor is the non-correlation of insurance contracts with stocks and bonds,” he said.

!Re’s patented technology is embedded in a proprietary user interface and a matching engine licensed from NASDAQ. The system is integrated into a purpose-built Bermuda reinsurance company, Extraordinary Reinsurance Company Ltd. (ERCL), to allocate ERCL’s underwriting profit and loss to the portfolios created by the trading participants. In addition, each portfolio is allocated a part of the investment income of ERCL.

“Rather than trapping capital in fully collateralized instruments, this patented plan allows long-term investors to earn investment income on premium dollars that have not been paid out in claims and expenses. Fans of Warren Buffet will appreciate this ‘premium float’,” said Van Slyke.

About:

Extraordinary Re is a platform for the daily trading of insurance assets and liabilities. The company offers solutions for traders and institutional investors, along with insurance companies and intermediaries.

Follow on LinkedIn: https://www.linkedin.com/company/extraordinary-re

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January 11, 2021 - New York

Extraordinary Re, the InsurTech that developed the first trading platform for insurance liabilities, today announced its intent to develop an asset owner/manager consortium. The eight interested organizations involved in the first consortium meeting manage more than $10 trillion in assets combined.

“We've invited a select group of visionary capital market leaders to create this consortium and build a market where before there was none,” said Lee Van Slyke, Extraordinary Re, CEO. “In this market, we are making it possible to trade $22 trillion in insurance liabilities.”

Marc Mayer, Chairman and CEO of Manning & Napier, and an advisor to Extraordinary Re, added, “There are substantial analogies to the market that Extraordinary Re is creating. Three obvious examples are real estate investment trusts (REITs), mortgage-backed securities (MBS), and asset-backed securities (ABS). Today, the capital markets think nothing of trading tens of trillions of dollars of real estate equity and debt, credit card receivables, and auto loans. But before these innovations, these markets were almost entirely illiquid. The ability to take something that is private and sits on an organization’s balance sheet, and transform it into something tradeable, is really just a matter of creativity, innovation and hard work.”

Brad Levy, president and chief commercial officer, Symphony added, “It is not uncommon to build a consortium to launch a trading platform. Gathering a group of people that can identify a common problem and be on the ground floor of launching a solution is not only smart but can be very lucrative.”

Extraordinary Re has built out the insurance architecture and its trading platform is powered by NASDAQ.

About:

Extraordinary Re’s patented platform for trading insurance liabilities is the natural evolution of ILS [Insurance Linked Securities]. !Re transforms the ways the capital markets take on insurance risks just as platforms have already transformed energy and currency markets. !Re benefits all participants in the respective markets’ value chains, from a new non-correlated asset class for institutional investors and traders, to ameliorating the protection gap for policy holders, to providing new tools for risk and capital management for insurance and reinsurance companies.

The names of the companies with whom people are affiliated are for identification purposes and do not imply a relationship with those companies.

Follow on LinkedIn: https://www.linkedin.com/company/extraordinary-re

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December 7, 2020 - New York

Extraordinary Re, an InsurTech that developed the first trading platform for insurance liabilities, today announced that Joseph Rosen joined the leadership team as Executive Vice President – Capital Markets.

Rosen has more than 30 years of experience in electronic trading and capital markets. In a prior role, Rosen served as Managing Director, Trading Technology and Head of Technology Marketing at the New York Stock Exchange. “There is nobody smarter in the electronic trading industry than Joe,” said Lee Van Slyke, Extraordinary Re, CEO.

Extraordinary Re’s platform for trading insurance liabilities is the natural evolution of Insurance Linked Securities. By creating new ways to transfer risk from the insurance industry to the capital markets, !Re deals with the limitations of cat bonds, and furthers the integration of insurance and capital markets.

Rosen holds an MBA from Columbia University and a Masters and Doctoral Candidacy in political science from Stony Brook University; is editor of The Handbook of Electronic Trading and five other books, and has lectured globally.

About:

Extraordinary Re's platform for trading insurance liabilities is the natural evolution of ILS [Insurance Linked Securities]. !Re transforms the ways the capital markets take insurance risks just as platforms have already transformed energy and currency markets. With the firm’s two patents, !Re benefits all participants in the respective markets’ value chains, from a new non-correlated asset class for institutional investors and traders, to ameliorating the protection gap for policy holders, to providing new tools for risk and capital management for insurance and reinsurance companies.

Follow on LinkedIn: https://www.linkedin.com/company/extraordinary-re

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November 23, 2020 - New York

Extraordinary Re, an InsurTech that developed the first trading platform for insurance liabilities, today announced that Will Dove has left the company, and founder, Lee Van Slyke will serve as Chairman and CEO.

“The !Re team thanks Will Dove for his contributions,” said Van Slyke. “Having successfully established our Bermudian insurance subsidiary, developed our functioning trading system with strategic partner Nasdaq, and relationships with leading industry service providers, including the top global insurer, we are ready to turn our focus to the capital markets side of !Re’s ecosystem.”

Extraordinary Re’s platform for trading insurance liabilities is the natural evolution of Insurance Linked Securities. By creating new ways to transfer risk from the insurance industry to the capital markets, !Re deals with the limitations of cat bonds, and furthers the integration of insurance and capital markets.

Van Slyke added, “There is no better time for !Re because reinsurance contracts are more profitably priced and premiums are larger in relation to policy limits than they have been for years.”

Van Slyke, a Fellow of the Casualty Actuarial Society, has been a consultant to large and private corporations and to the insurance industry for more than four decades. He created Extraordinary Re because insurance liabilities had no secondary market.

About:

Extraordinary Re’s platform for trading insurance liabilities is the natural evolution of ILS [Insurance Linked Securities]. By creating new ways to transfer risk from the insurance industry to the capital markets, !Re deals with the limitations of cat bonds, and furthers the integration of insurance and capital markets. With the firm’s two patents, !Re benefits all participants in the respective markets’ value chains, from a new non-correlated asset class for institutional investors and traders, to ameliorating the protection gap for policy holders, to providing new tools for risk and capital management for insurance and reinsurance companies.

Follow on LinkedIn: https://www.linkedin.com/company/extraordinary-re

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November 19, 2018 - New York

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https://www.nasdaq.com/articles/extraordinary-re-fuels-the-next-generation-of-insurance-linked-securities

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March 14, 2018 - New York

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https://www.waterstechnology.com/risk-management-performance-reporting/3523941/extraordinary-re-partners-with-nasdaq-for-blockchain-insurance-risk-marketplace

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March 14, 2018 - New York

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https://www.youtube.com/watch?v=qrjyNYnwfM0

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March 14, 2018 - New York

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https://www.businessinsider.com/insurtech-extraordinary-re-partnering-nasdaq-80-billion-opportunity-2018-3?r=UK&IR=T

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March 14, 2018 - New York

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March 1, 2018 - New York

Please paste the link below into your browser to read this item:

https://www.nasdaq.com/about/press-center/nasdaq-and-extraordinary-re-sign-market-technology-agreement

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March 1, 2018 - New York

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https://www.artemis.bm/news/extraordinary-re-to-use-nasdaq-tech-for-matching-risk-capital/

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November 15, 2017 - New York

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https://www.insurancethoughtleadership.com/expanded-role-alternative-capital

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November 15, 2017 - New York

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https://thefr.com/opinion/2017/9/26/guest-opinion-recent-hacks-could-accelerate-risk-management-innovation

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April 20, 2017 - New York

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https://www.linkedin.com/pulse/silicon-valley-eating-insurance-scott-campbell

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April 20, 2017 - New York

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https://www.dig-in.com/slideshow/startups-pitch-insurers-on-blockchain-big-data-iot-and-more?brief=00000159-faf0-d111-af7d-fbfd9f0a0000

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April 4, 2017 - New York

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http://riscosegurobrasil.com/editorias/insurtech-vai-oferecer-trading-de-riscos-seguraveis/

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- New York

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https://www.plugandplaytechcenter.com/resources/meet-175-startups-joining-programs/

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April 13, 2022 - New York

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https://www.youtube.com/watch?v=GR4EhGePKGI

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April 4, 2017 - New York

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https://www.dig-in.com/slideshow/plug-play-introduces-24-member-insurtech-cohort

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September 26, 2016 - New York

A REPORT FROM THE SEMINAR ON REINSURANCE HOSTED BY THE CASUALTY ACTUARIAL SOCIETY, JUNE 1-2, 2015

by Lee Van Slyke

Three reinsurance CEO’s reported that there is an excess of capacity, making it nearly impossible for reinsurance companies to realize their traditional goals for ROE of 12% to 15%. A culture not to try to “shrink to success” causes companies to seek tactics that maximize revenues even though premium rates are less adequate than in the past. There are emerging risks that may provide premium growth in the long run but the industry struggles to find ways to insure those risks and be paid for doing so.

John Berger, Chairman and CEO of Third Point Re, Carole Ferrero, President and Chief Underwriting Officer of General Re, and Ed Noonan, Chairman and CEO of Validus Holdings, Ltd., opened the two-day conference by fielding questions from Bruce Fell of Deloitte Consulting. One perspective is that the days of ROE goals of 12% to 15% are probably over, at least as long as alternative stock investments are in companies that earn ROEs of 5% to 10%. Another is that for many classes of reinsurance, though not all, the bottom of the market cycle has been reached and prices are becoming more adequate.

The biggest impact on prices has come from the influx of new capital into Insurance-Linked Securities (ILS) and hedge fund-backed reinsurance companies, both with ROE models different from traditional stock reinsurance companies. Third Point Re is a hedge fund-backed reinsurer. Validus Holdings, though diversified, is a major player in ILS. General Re is owned by Berkshire Hathaway. In an important sense, all three panelists represent companies with non-traditional capital models. Berger reported that with the completion of deals for the hurricane season beginning on June 1 the capital in ILS is about $70 billion.

Reinsurers don’t take advantage of the low prices by buying more reinsurance, according to Michael Toothman. In response to his question why they don’t the panelists presented a consensus view that it is perceived ineffective to “shrink to greatness”. Not mentioned was that Validus Group has completed share repurchases totaling $1.8 billion, or about 180% of its initial capital. (Validus was founded in 2005.)

Thomas Johansmeyer of ISO, Michael Millette, recently retired from Goldman, Sachs & Co., and Carlo Segni of the World Bank described new insurance products and new markets for ILS. Segni explored the importance of insurance products in underserved emerging economies. The World Bank has many initiatives to provide insurance products to these communities, particularly for business owners just emerging from poverty, Segni said.

Millette explained that new kinds of risks lurk in old kinds of contractual relationships. Citing a cyber attack, he questioned whether today’s contracts would transfer financial responsibility as the insurance companies expect. This could be addressed, he said, by creating objective triggers for coverage, embedding those in reinsurance contracts and then in retail insurance contracts, which would make it important for corporate risk managers to place similar wording in their contracts with suppliers of goods and services. One clear advantage over the prevailing ambiguity of contract wording is that insurers would get paid to take the risks they may be taking anyway.

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