Bermuda Re/insurance Roundtables
Have events such as Hurricane Irene and Superstorm Sandy changed perceptions within the industry regarding US East Coast wind risk?
Marty Becker: I’m not convinced Superstorm Sandy changed industry perceptions, although as with all events the industry will learn from it. The models aren’t particularly good at storm surge, or business interruption exposure—and there’s been a lot of that. Probably, as virtually every company has said, it’s an earnings, rather than a balance sheet event. It is far from a market-changing event, but it is meaningful and we’ll learn from it.
Charles Cooper: I agree. Previously, when Northeast risk was
talked about it was discussed in the context of peril, and there’s been a lot of debate on perils, whether you could have a category 3, 4 or 5 hurricane heading to the Northeast. That is a bit irrelevant now because a $25 billion event resulted from a relatively low-level wind event and so the peril is certainly interesting. The more important thing is the shift on the exposure side. The concentration of values on the Eastern seaboard makes it really unique. You also have aging infrastructure, much older building stock, less stringent building codes. When you consider the exposure presented by the Northeast it’s quite unique, and Sandy has opened people’s eyes to the concentration of values in the area.
Bermuda Re brought together a number of leading figures
from the Bermuda market for a roundtable event in Hamilton to discuss key issues affecting the
market in 2012 and beyond. Topics addressed included the implications of Superstorm Sandy, the rise of ‘alternative re’ and the prospects for another global reinsurance hub, with insights from the event
providing an invaluable barometer of the market.
Kean Driscoll: From our perspective, the probability of a category 1 occurring is one every ten years. However, we saw two consecutive years—1954 and 1955—that faced category one or greater storms, so from a frequency perspective this isn’t outside expectations. With respect to storm surge, we think the SLOSH model generally performed well, and we calibrated our US storm surge expectations from that.
I concur with Marty and Charles—there are lessons to be learned. From
my perspective the most important takeaway is hurricane deductibles, particularly at lower wind speeds. This is an issue that is rather politicised so we’ll look to price that differently in the marketplace going forward. We’ll take a much more conservative view as to whether we incorporate hurricane deductibles for category 1 or 2 events.
There’s going to be clear winners and losers from our perspective
in flood underwriting and how they’ve performed, so application of deductibles, sub-limiting, attention to policy form, and how that translates into a loss in the reinsurance market will all be important. Overall the impact of these events on the re/insurance market makes them atypical. It’s probably around 65 percent commercial, whereas with a large windstorm event it is typically far more residential.
Also, with a $20 billion-plus event with a 65 percent commercial concentration there will be some significant net retentions for the big national accounts—the 16 or 17 companies that make up that pool. That’s $12.5 billion of net retentions, so distribution of loss through the marketplace will be atypical.
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