Welcome to Monte Carlo Today
The Rendez-Vous de Septembre in Monte Carlo may have been cancelled for the first time—due to COVID-19—but the re/insurance industry has long and proud traditions. For more than 60 years, executives have travelled to Monte Carlo in September to start the process of negotiating the year-end renewals.
Despite there being no event, that same ritual will take place this year—in a virtual setting.
Press conferences and roundtables are going ahead; and senior executives are giving interviews putting their markers down in terms of their expectations for changes in rates and terms and conditions.
On this basis, we are publishing our Monte Carlo newsletter Monte Carlo Today—usually distributed live at the event—as we have always done.
We will interview senior executives, attend the virtual events and ensure our readers have their finger on the pulse of the industry at this critical and unprecedented time.
We hope you find the content in the following pages as useful and insightful as you have always done. We miss seeing the industry face to face as well, but we will still do what we have always done: report on the most important events, news stories, opinions and debates to keep our readers informed and ahead of the game as they make decisions.
Wyn Jenkins, managing editor, Intelligent Insurer
A sneak preview: more exclusive content and interviews inside
Industry could be facing $500bn hole in its balance sheet: Convex CEO Catlin
A combination of COVID-19 claims, a massive casualty hole and challenges on the asset side of the balance sheet mean the industry is facing an unprecedented crisis that will mean an elongated hard market, Stephen Catlin, CEO of Convex, told Monte Carlo Today.
The re/insurance industry is facing a hole in its collective balance sheet far bigger than anything it has experienced before in its history, including 9/11, 2001, and which could reach some $500 billion, Stephen Catlin, the chief executive and chairman of specialty re/insurer Convex Group, told Monte Carlo Today.
Catlin said he has believed for some time that there is a hole in the industry’s casualty reserves of between $100 billion and $200 billion.
Claims stemming from COVID-19 could reach a similar range on a global basis, although he admits estimates remain difficult at this stage.
Finally, the industry faces a huge challenge on the asset side of the balance sheet due to decreasing interest rates.
“All in all, we are looking at a situation where the bottom of the range is maybe $250 billion—but the ceiling is closer to $500 billion. That is significantly greater, on a pro rata basis, than anything we experienced after 9/11,” he said.
“Back then I would say the range was between $50 billion and $60 billion split across World Trade Center claims and another casualty hole. But that was enough to move the market for some time.
“On that basis, it is hard to make a rational debate that suggests the duration of this hard market will be any less than that. We are in a different league completely today.”
He also suggested that, while new capital will enter the industry and potentially dampen rates hardening, the amount of new money entering the industry on a pro rata basis is actually less than after 9/11.”
A sneak preview: more exclusive content and interviews inside
A sneak preview: more exclusive content and interviews inside
Diversify the capital structure and ILS will thrive
The market must think about better ways of structuring capital in this new challenging environment, according to Dirk Lohmann, chairman of Schroder Secquaero.
Lohmann explained that the industry will be faced with the challenge of having to optimise the return on capital in an environment where “we’re going to have persistently low or no interest income”.
He added: “There’s a certain amount of rate you can pass on to the consumer, but at some point in time, you’re going to reach a breaking point where people won’t buy.
“You have to think about more optimal ways of structuring your capital.” Lohmann was speaking in an interview broadcast on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are held live on a weekly basis and content is available on demand at any time to members.
According to Lohmann, finding new ways of “building the risk tower of capital” could be a big opportunity for the ILS market.
Schroder Secquaero is part of the private assets business with Schroders, which means that it has investors who have longer duration horizons from an investor perspective than you might typically find in an ILS fund.
“When you’re looking at commitment of a year or little longer, it’s constraining with the types of insurance risk and assets you can invest in,” he said. “But with a longer horizon, there are other areas you can investigate.”
