Emerging Risks/Concirrus Roundtable, IUMI

Expectations have risen in the marine (re)insurance market and there is now a demand for better data and a desire for greater transparency when it comes to exposure management, according to participants at a joint Emerging Risks/Concirrus Roundtable held at this year’s International Union of Marine Insurance Conference in Edinburgh.

Discussing the subject “Writing war risks without a safety net – how can marine insurers better manage exposures to mitigate reinsurance shortfalls?” the roundtable discussed the recent turbulence with regard to the thorny issue of war exclusions. There was general agreement that insurers and reinsurers alike have been working hard to try and solve these issues and amend cover this year in a bid to avoid the challenging nature of recent renewals.

Demian Smith started proceedings by setting the issue in context by pointing out that the challenge the market has faced from a reinsurance perspective was that, even though it understood that there was a strong likelihood of a war with Ukraine, and that this war had been ongoing for some time by the time of the 1.1 reinsurance renewals this year, there was a degree of inconsistency in the way the market approached the various challenges presented to it over war risks.

Aggregation Challenges

“At the reinsurance renewals it was more reinsurance driven than probably we have seen in a long time, where traditionally reinsurers have tended to follow the approach of the direct market to managing exposures,” he said. “Reinsurers were so concerned with the aggregation potential and uncertainty of the final quantum of loss, that they applied their own specific approaches to the market. At different stages of the renewal: different reinsurers took different views. Some carriers, for example, would only consider exposures where a blanket exclusion had been applied – even extending beyond the area of the conflict. Others, however, were much more in line with where they had been previously, but were nonetheless starting from a position that this was a challenge for the market to manage in view of the nature of the conflict.”

Reinsurance Re-entry

Significantly, Smith added that the position adopted by some is now changing, and that one reinsurer that had taken a firm position to limit cover last year was “preparing to consider a more flexible approach this year”.

John Owen followed this point by pointing out that historically the market has tended to follow the direction of a leader, but this time round, it was difficult to get consistency. “We have ended up with a patchwork quilt of coverage and that can be more difficult to manage,” he added.

Richard Lurcott agreed, noting that it was frustrating renewals were in some instances more difficult, given that reinsurers with 1st January programmes had 8 months effective notice of restrictions coming down the track, compared to those renewing on April 1st 2022 following the February 2022 invasion of Ukraine. and went on to suggest that it would have been good if a separate risk code had been identified for those affected territories. He added “Is it equitable that a reinsurer restricting or withdrawing war reinsurance coverage nevertheless receives some adjusted premium on that breach area exposure?”

As one participant noticed there have been inconsistencies, and that they have had a second renewal, “and there are still inconsistencies on the programme… for my direct hull and war underwriters it is really difficult when you have that inconsistency. We are lucky because we are a large company and continue to support our clients in the same way we had before, but some of our peers have a different capital structure and different risk appetite, and they probably wouldn’t be able to do that without the reinsurance.”

Market Solutions

Owen acknowledged at this point that despite the difficulties faced with regard to war risk programmes, solutions have been found for clients and that this was a great testament to the power of the subscription market.

“Yes, I’m not aware of any risks that didn’t get placed and we continue to service all of our existing clients,” added another participant, stressing that a key part of all of this – in conjunction with existing technology – has been effective communication.

Participants accepted that a continuing issue for the market remains its ability to adequately monitor and understand its own aggregations, with some suggesting that recent difficulties over possible Russia-Ukraine-related exposures have served as a wake-up call for sections of the market, which should have a better handle on the utilisation of technology that already exists.

Andy Yeoman said that one of his observations in speaking to the market was the extent to which risks are actually written through facilities, which mean - according to some - that they didn’t exactly know what risks they were exposed to. “It took an event like Russia-Ukraine for some to sit up and ask the question ‘are we ok in doing that?’”

“One of the things that perplexes me is that there is a lack of transparency across the market,” he added. “Even if you are a direct war underwriter and you understand your risks, is that communicated to the reinsurer? One of the things we have been developing here is a confidential share, so that the reinsurer that has written a number of quota shares can understand their aggregate exposure without necessarily having visibility of which cedant it come from. And if they can understand their aggregate, then their ability to go to the retro market is improved.”

Data Key

Smith picked up this point, noting that the lack of transparency in the potential for aggregation is of concern to reinsurers, and accepted that a big issue for the market is its ability to demonstrate to reinsurers how they monitor and understand aggregations.

Despite continuing concerns over data adequacy, however, the roundtable consensus was that insurers in the London market have really upped their game of late and now have much more information about their exposures, though there remains a demand for better data still, with Smith suggesting there is a desire for the ability of reinsurers to be able to identify their potential aggregations through systems where data will “flow freely” and Lurcott stressing that better information “is vital”.

Presenting the view of the Lloyd’s Market Association, Neil Roberts added that in the run-up to Russia’s invasion of Ukraine there was still some disbelief that this could happen, and adopted a different stance to others in the room, where the clarion call for better data had been loud and clear. “The obsession with data isn’t helping anybody,” he said. “You should have an appetite for risk.” He added that Lloyd’s depends on its reputation for writing “difficult risks in difficult circumstances” but conceded that “capital is more ruthless than it was”.

Special thanks to our attendees and co-host, Emerging Risks