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      seen their balance sheets depleted by low

interest rates. But as decent investment returns all but disappear, the industry needs to avoid the temptation to underwrite more risks at a lower than required premium simply to create cash      “We’ve seen this in the past. When invest-

ment rates are very low, cash can begin to look very attractive even if it comes at a less than ideal price. Both the regulators and industry management are keeping a sharp lookout for this behaviour and rightfully so,” he says. Fortunato says that the consolidation of re- insurance brokerages is also causing problems for the industry. There are now fewer routes to quality reinsurance than in the past, limiting choice for buyers. Although reinsurance has enjoyed a pro- longed period of stable rates that will eventu- ally end. Some cedants have been looking to in- crease retention levels in response to premium changes but, he says, it is important they under- stand the consequences of this.

22.10.12 MONDAY

Beware of the temptation to chase business I

use of non-traditional products such as insur- ance-linked securities (ILS). -

ingly or due to premium increases, means that you’re keeping the liability for something you could have transferred to the reinsurance mar- ket. The numbers just have to work,” he says. In terms of what is driving upwards pressure


“When increases come it’s important for a cedant to understand the actual exposure they will retain if they increase their attachment points just to save premium dollars.” Fortunato has also seen a trend of cedants looking to manage risks spread across multi- perils and many territories themselves, by in- creasing retentions and centralising their buying strategies rather than using reinsurance. Such complex programmes can often be suited to the

on rates, Fortunato says poor investment re- turns are still the main factor. He believes most rates have some element of a presumed invest- ment income stream associated with them. “If that stream is gone there is less room for nego- tiation and a likelihood of an increase,” he says. Another big challenge facing insurers


climate change. Fortunato says that it is to the industry’s credit that it is at the forefront of this issue in terms of the development of technolo- gies and solutions. “There are still people who dispute the sci-

ence, which is ridiculous, but the work that people such as the Reinsurance Association of America’s Frank Nutter and others have been doing for years on this issue has galvanised the attention of the industry.” 

important global hubs for reinsurance in the world. That remains the case, and in the past three years, it has also started to establish itself as the foremost domicile for insurance-linked securities (ILS). The domicile in question is Bermuda, of

Bermuda hosts a healthy and growing ILS market O

         reputation for being one of the most

“Bermuda has more than three decades of

course. Greg Wojciechowski, president and    Exchange (BSX), says that the island now has         aggregate market capitalisation of more than  This has developed from a standing start in

 to make the setting up of Special Purpose In- surers, the vehicles used to set up cat bonds and other ILS, much easier. “And we are still grow- ing,” Wojciechowski says. 

robust year for ILS issuance for both Bermuda and the BSX. And he is positive that, on the back of the island’s experience with the reinsur- ance industry, this will continue to grow.

experience in the global reinsurance and spe- cialty insurance space,” he says. “As a result of this longevity Bermuda is now one of the largest players in the reinsurance space and has established a well regarded foundation that supports existing business while encouraging innovation. This is why moving into this space has worked so well for us. “Bermuda’s emergence as a location of

choice for the creation and listing of ILS struc- tures is a sign of both Bermuda’s and the BSX’s commitment to ensure that our platforms meet our clients’ expectations and deliver value to them. We strive to provide them with the tools they need carry out business effectively.”

“The BSX is committed to supporting the development of the ILS asset class and is working with the industry to provide additional levels of stock exchange service.”


 The BSX in particular will look to help de-

velop this asset class in any way it can. “The BSX is committed to supporting the devel- opment of the ILS asset class and is working with the industry to provide additional levels of stock exchange service to support the needs of investors, sponsors and others that partici- pate in this asset class, and we will continue to work with them as the market grows,” says Wojciechowski. 

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