CertAsig in Monte Carlo – Special Article

CertAsig in Monte Carlo – Special Article,  by James Grindley – CEO CertAsig

Florida hurricanes seem a long way from Romania, so how could these distant events affect reinsurance prices for buyers in Central and Eastern Europe ?

During the weeks leading up to this year’s Monte Carlo Rendez-Vous, most re/insurance players expected fairly tame discussions. Initial January 2018 treaty renewal price forecasts included language such as ‘reinsurance market still soft but no more dramatic price reductions predicted’ or ‘cedants to focus more cover rather than pressing for price reductions’.

But Monte Carlo discussions were abruptly disrupted. How and why?

As almost 1,000 re/insurance experts travelled to sunny Monte Carlo, a number of potentially damaging hurricanes were brewing and beginning to flirt with the heavily insured South Eastern States of America, in particular Florida. At one point Miami seemed to be in the clear sights of Hurricane Irma.

As reinsurers met their clients in Café de Paris, hurricanes Irma and Harvey raged through the Caribbean and Florida coast causing huge damage. Even now at the time of writing, the estimated insured loss remains unclear. Hurricane Irma alone could well reach a staggering aggregate insured loss of between USD 35,000,000,000 and USD 50,000,000,000. This is by far the largest global market loss in the last 5 years, perhaps even longer. TV images showed local Floridians packing up their belongs and driving north-bound away to safer havens.

Back in calmer Monte Carlo, just a few gentle wisps of wind away from the famous Casino, reinsurance underwriters prepared for their busy annual meeting schedules with brokers and clients. These underwriters were visibly agitated as they typed messages on their i-phones and Blackberries. Their messages requested rough estimates from their back-office colleagues of their possible exposures to these events and potential losses.

The tone of CertAsig’s and PAID’s meetings was as friendly and relaxed as ever. However some reinsurers already predicted the end of a soft market, some even explained likely treaty increases in 2018. Brokers however assured their CEE clients that the reinsurance market remained over-capitalised and that such hurricanes would not be a reinsurance game-changer. Further, why should a cedant immune and detached from high winds in Florida pay more for reinsurance to effectively subsidies insurers active in wind-storm affected insurers in and around Florida? A very good question, we answered.

Well the real answer was that reinsurance is truly a global business where reinsurers pool catastrophe risk from all corners of the earth, knowing that no single event could likely affect all major cities nor would different events affect different places within the period of one year. As such, cedants should embrace this global concept.

The conclusion of reinsurance brokers in Monte Carlo, which as a reinsurance buyer I prefer to accept, is that global reinsurers cannot genuinely expect Romanian or Bulgarian insurers to pay more their reinsurance in 2018 to reimburse reinsurers’ 2017 Florida windstorm losses.

After all, can you imagine Florida insurers accepting an increase in their reinsurance cost to pay for floods in Czech Republic or an earthquake in Romania? There are higher chances of North Korea joining the European Union….perhaps they will replace Great Britain? But this was another Monte Carlo discussion point.