Catastrophe Insurers Go to Washington
Insurers want a role in responding to the pandemic (as long as it doesn't involve their capital)
With the political landscape shifting quickly in Washington, the insurance and reinsurance industries are scrambling to tell whatever lawmaker that will listen that the private market has a limited role in the big “non-insurable” risks.
During a hearing of the Select Committee on the Climate Crisis last week Joanna Syroka — Senior Underwriter and Director of New Markets at insurance-linked securities (ILS) fund manager Fermat Captial Managment — gave lawmakers their pitch of how capital markets could play an expanding role in the U.S. government’s increasing catastrophe risk portfolio as a way to provide “price discovery function in society.” Syroka told the committee:
…ILS market – like the insurance and reinsurance markets it supports – is at the forefront of continually monitor events and check our models and benchmarks for any potential changes in extreme weather activity, seeking to detect and integrate emerging climate trends into our investment processes. This ongoing feedback loop is critical to the functioning of the ILS market, creating a “climate linker” market architecture within which ILS can be thought of as “climate- indexed floating rate” investments.
Congress should also expect signifiant investor demand for any government-backed ILS because the structures are “inherently aligned” with the $40 trillion ESG market. Syroka added
…our asset class has received significant attention from investors who are increasingly considering these qualities in their investments. In short, while the need for insurance capacity is great and growing, the capital required to set against this country’s most pressing extreme weather risks is on stand-by to be deployed.
Syroka proposed five recommendation for Congress to support ILS:
Move ILS fund back “onshore” and away from overseas domiciles like Bermuda and the Caymans by cutting the corporate tax rate of US-based special purpose insurers (SPIs) and making them pass-through vehicles.
Push regulations that would allow communities, municipalities and states to issue more ILS, using the Federal Emergency Managment Agency’s (FEMA) flood-based catastrophe bond as a template.
Adopt “innovative” public/private risk transfer deals, including expanding the Stafford Disaster Relief and Emergency Assistance Act to allow catastrophe bonds to fund disaster declarations
New legislation to encourage” federal agencies to work with the private sector to better manage and transfer climate risk.”
For Best “Supporting Role” In a Pandemic: Insurers
As insurers and reinsurers fight in court to block business interruption claims tied to the COVID-19 pandemic, they are in turn trying to convince the U.S. government to employ private market to process the claims. For a fee, of course.
In a presentation last week to the U.S. Treasury Department’s Advisory Committee on Insurance, University of South Carolina professor Robert Hartwig said that the role of the private property casualty market in pandemic cover is “negligible.”
Hartwig, former leader of the industry-backed Insurance Information Institute, argued that private industry’s claims paying capacity and the inability to measure the frequency and severity of pandemic risk means pandemics are uninsurable.
However, he did see a role for private insurers to employ their “expertise” in processing and managing pandemic claims paid by the government.
I believe there is a role for the insurance industry to play, but in terms of actual risk bearing in terms of business continuity losses there is no meaningful of participation the the private property casualty industry can make without threatening it’s solvency.
Today’s Risk Reads
RGA Feeling the COVID-19 Heat
RGA reported that COVID-19 claims totaled $161 million in the second quarter, with 80% of those in the U.S. But the company estimated actual coronavirus-related claim costs to be nearly twice as high — suggesting coronavirus casualties are vastly undercounted.
How the pandemic looks for a St. Louis-based insurance giant, Columbia Daily Tribune
No Room Needed In The Underwriting Room
Lloyd’s of London, the world’s largest insurance market, is looking to abandon traditional office working even after coronavirus restrictions are lifted following the success of remote working. “In the longer term, we are likely to see a more blended approach that enables the best of remote working with the benefits of a flexible work space,” Bruce Carnegie-Brown, its chairman, told The Sunday Telegraph.
Lloyd's of London turns its back on the commute, Sunday Telegraph
Canada Wants a Pandemic Pool, Too
… if “pandemic pools” are to be constructed, the insurance industry can offer distribution and claims management capabilities but cannot put up material amounts of risk capital. In the end, the loss must largely be borne by government.
Pandemic a reminder Canada’s insurance industry needs a government backstop for catastrophic events, Globe and Mail
Market Cuts Bermuda
Markel Corporation has closed its property-catastrophe reinsurance unit, impacting a team of about 25 people in Bermuda, The Royal Gazette understands. Some of the impacted staff have been offered jobs with Nephila, another branch of the Markel group, also based in Bermuda.
Jobs go at Markel, Royal Gazette