Taking reinsurance into the future
It was a huge honour for me to be elected president of l’Association des Professionels de la Réassurance en France (Apref) last year. I have spent my entire 25-year career in reinsurance, and seen the market evolve and adapt to meet its clients’ changing needs. It is exciting for me to take on the role at l’Apref at this time in the industry’s development and at this stage in my career.
L’Apref is an association with a small but dedicated and talented staff. And much of the association’s work is done by the reinsurer members themselves; they drive the association’s vision and agenda.
Our purpose includes being a laboratory for ideas on all questions related to the French reinsurance market, being a discussion forum, ensuring good relationships with other professional bodies, public offices and the wider market, contributing to efforts to increase the attractiveness of the subscription reinsurance market in France, and to maintain a healthy network with international bodies.
We are seeking to demonstrate the areas in which we believe reinsurance can, and should, play a bigger role. A good example of that is in coverage for natural catastrophe risk.
In France, the state-guaranteed backstop la Caisse Centrale de Réassurance S.A. provides coverage for natural catastrophe risk, among other things. Reinsurers, however, can complement that coverage and give buyers wider and more tailored solutions to their particular needs.
And more than this, we believe reinsurance can play a bigger role in helping communities to recover more speedily from natural catastrophe events.
One of the most pressing problems facing society at large is the gap between economic losses and insured losses in the wake of destructive catastrophes – the so-called protection gap. The Geneva Association, an international insurance think-tank, estimates that for natural catastrophes, the protection gap is about 70%.
According to the Insurance Development Forum, about $163 billion of assets worldwide are underinsured. And research by Lloyd’s of London suggests that just a 1% increase in penetration could reduce the disaster recovery burden on taxpayers by as much as 22%.
There is a role for reinsurance to play here. If we can increase our penetration, by providing meaningful coverage, then the burden on governments and societies will be reduced and communities should be able to access funds to help them rebuild more quickly.
This may involve using innovative techniques such as parametric triggers or different mechanisms such as microinsurance plans. International reinsurers operating in France have access to the expertise and capital to enable them to begin to address this problem. And at l’Apref we aim to provide a forum to discuss ideas as well as a lobbying platform to ensure that the conditions are right for reinsurers to be able to devise the solutions needed to address risks.
Of course, it is not just for natural catastrophe risk where there is a protection gap. The Geneva Association says that for cyber attacks the protection gap is even larger than for natural catastrophe –at a whopping 90%. Here again is an opportunity for the reinsurance industry to find ways to address the gap.
The lack of historic claims data and the ever-changing nature of the cyber threat make this a particularly testing challenge. But again, tapping into the international expertise of l’Apref members and facilitating debate is one way we, as an association and an industry, can, we believe, help to tackle this gap.
An industry in evolution
Reinsurance remains, in many ways, a “traditional” class of business, with much of the meaningful negotiation still carried out in face-to-face meetings and long-term relationships playing an important role. But the industry is modernising as it adapts to the changing needs of its clients.
Solvency II, the EU-wide risk-based capital regulatory regime for insurers and reinsurers, appears to have been a success in making the reinsurance market more resilient to shocks.
While the reinsurance industry used to be prone to cycles, as capital contracted or rushed in, there now seems to be a greater stability in the industry.
The recent and continued influx of so-called alternative capital into the industry now forms an important part of insurers’ and reinsurers’ own hedging strategies. The series of large catastrophe losses in 2017 and 2018 did not deter alternative capital investors, and it seems clear that alternative capital – which, after all represents just a small proportion of those investors’ portfolios – is here to stay.
Reinsurers are adapting to this new normal and those reinsurers that are able to source this alternative capital and match risks to the appropriate form of capital are best placed to meet their client’s evolving coverage needs.
This is an exciting time to be in reinsurance. And I relish the opportunity as president of l’Apref and chief executive Europe and chief underwriting officer for property and casualty reinsurance at AXA XL to take part in moving our industry forward to the next stage.