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Bermuda Re/insurance Roundtables


“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.”


The other key takeaway is that there are some regional and super- regional companies that are pretty deep into their programmes. If I was sitting on the board of one of those companies and saw a category one or tropical storm producing pretty similar losses to the top of the programme, I’d be asking some pretty hard questions such as ‘do we buy enough protection?’. We haven’t seen that demand flow through yet, but I think the concentration of values, the scope of losses, and all from a relatively modest event in terms of wind speed, but with a huge geographic footprint, probably dictates some serious questions about whether companies are buying sufficient protection.


Is there an expectation that insurers will buy more coverage in response to Sandy?


James Few: It might well happen. One of the positive things that may come out of Sandy is that the event might encourage people to question whether they bought enough cover. While Irene and Sandy were not the biggest events that could have happened, they could well change some thinking at management level about how much limit is purchased.


Returning to flood underwriting, it is going to serve as a test and differentiator for the quality of underwriting within the industry. On


the personal lines side, the US government’s National Flood Insurance Program (NFIP) was already $17 billion in debt prior to Sandy. Sandy might well add another $10 billion of debt to that programme. This raises the question as to how much political will there is to continue running a scheme that clearly is underfunded. There are moves to offer private solutions for flood as a peril and the Reinsurance Association of America for example has recently helped make the case for legislation that will allow the NFIP to buy private reinsurance. That is a step in the right direction towards actuarially sound rates.


Therefore, there is potential for more market opportunity for flood


in the private sector. Clearly, it has to be acceptable for the market to charge a fair rate—the market doesn’t want to be $27 billion in debt. There will need to be a lot more detail on flood mapping and original underwriting details—flood is a very locally-specific peril. It’s difficult to model for lots of reasons, but one is that you can have two risks quite close together geographically that are completely different flood risks. Are the flood zone maps that underpin a lot of primary underwriting accurate enough? Could that be improved?


Konrad Rentrup: Currently we don’t see a general increase in demand. There is always the exception that cedants buy additional


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