NEWS
Reinsurance needs better secondary perils modelling
Re/insurers need to do better at pricing secondary perils, says Mapfre Re.
The reinsurance industry needs to do much better at modelling second perils in order to price the risk better, according to Mapfre Re chief underwriting officer Javier San Basileo.
San Basileo, who is also deputy general manager of the Spanish reinsurer, said the sector needs to reduce the protection gap, citing the recent earthquake in Morocco.
Noting that the first half of the year had brought catastrophe losses of $50 billion, almost entirely from secondary perils, he said: “We tend to call them secondary perils even though they’re not secondary any more.
“Perils pop up everywhere. This is something we don’t capture well in our models, our underwriting or our pricing. The industry needs to put more focus on it.
“The main catastrophe models are good on big hurricanes and big earthquakes and the market is aware of the risk and we try to price for it as adequately as we can. But we’ve been driving our results down by secondary perils which neither we nor the insurance companies have been pricing for.”
“The industry needs to do more to cover underinsured regions.”
Javier San Basileo, Mapfre Re
San Basileo said insurance companies were retaining more of the losses this year due to higher retentions.
“In theory, this should force them to adequately price them or in some way, to constrain the risk, but it is not easy,” he said. “Because they pop up every day.”
Helping the underinsured
San Basileo added that the reinsurance industry needs to do more to cover underinsured regions and communities.
He said Mapfre Re had very limited exposure to the Morocco earthquake, but he added the earthquake had shocked many people in Spain, which has a close relationship with the North African country.
“One of the worst things of our industry is not being able to help in the places where they really need it the most,” he said.
On what Mapfre is doing to address the problem, he said the group has focused on Latin America where it has deep ties, through education and micro-insurance programmes, and has made some progress, although market penetration is not yet where the company would like it to be.
“We need to be able to make a return.”
On the upcoming renewals season, San Basileo said he was hoping for a more orderly process than last January, which he described as a “perfect storm”.
“What I want for this year is to keep on consolidating the improvements in our portfolio and improvements in the market,” he said.
“What I expect is something a bit more orderly than we had last year when everything was very late and it was very messy.”
San Basileo said cedants were better prepared for higher rates and terms and conditions than a year ago.
“Last year was a surprise for many, because for many years, we were not asking this question. And that’s on the reinsurers. We were letting the market go into a place where it wasn’t healthy for anyone in the long term.
“Clients understand that for us to be there when they really need us, we need to be able to make a return. This is a very basic reinsurance philosophy, but I think people understand it now more than three years ago,” he concluded.
Images, from top: Shutterstock / Fernando Astasio Avila