Here to help
Andrew Barnard, senior managing director, head of international property catastrophe and retro reinsurance at Markel points out that it’s been difficult to get an immediate idea of the consequences of Irma, a complex and fast-moving event in which so much of Florida was affected.
“Miami was just glanced by Irma, so I hope that was a wake-up call for people about the values involved. A direct hit there could have been a much larger number than the one that might emerge from this,” says Barnard.
“Irma came on the heels of Harvey and six years of meaningful rate reductions, not to mention there could be additional events this year. It would be logical to assume the increased frequency of losses will turn the market,” he says, adding that some of the initial estimates were more than $80 billion, mainly on the track that it was projected to be heading towards Miami.
He adds that it will be interesting to see what the model error was from this, and whether the model took into account the size of the storm, which was ‘the size of France’ in some reports.
Barnard thinks the event will lead to a hardening of the market. “The moment it was spoken of as being north of $50 billion there was a hardening of the market. We are now moving the right way at last, but as to whether it’s just in the US or globally I couldn’t tell you, as there are no data points yet.
“As a reinsurer I’m always going to say globally and as a broker I’m always going to say locally. In between those two somewhere is the truth.”
There will soon be renewals in areas such as Australia and others that will give a good bellwether for what going to happen in terms of rates, he says. However he stresses that there could still be further developments from Irma. He also points again to the remarkable width of the storm.
“How many times has a hurricane hit Naples in Florida? How many times has a hurricane hit Tampa? Twice is what I’ve read, and yet Irma affected them both. Isn’t that extraordinary?”
Barnard believes the market will be responsible in its reaction to the hurricane, underlining that Markel values its long-term clients and that it is there to help them to replenish their capital. The company would honour everything they had agreed to in terms of valid claims.
Barnard says that Markel values its long-term clients. “We’re here to help them and we’ll honour everything that we’ve done with them. In terms of supporting them, we’ll support good clients—that’s the relationship we’re in, we understand what we’re doing here.
“Our responsibility to the client is upmost—it’s customer service, which includes accelerating claim payments and offering back-up covers,” he says. “We have highly valued clients and we will very happily help them out. What’s complicating the issue at the moment is that we just don’t know yet how bad the damage from Irma has been.
“However, we’ll know very rapidly how our valued clients have been affected. We know our old established client base very well and that’s something we take pride in,” he explains.
“The other point we need to be very conscious of is not to take the service level away from our non-Floridian, non-retro, non-London market clients. We have to make sure we service the rest of our book equally well.”
The great unknown
According to Barnard, the market still needs to focus on what was concerning it before Irma arrived on the horizon.
“Cyber was one such subject. We have to make sure we don’t take our eyes off the ball there, or indeed on some of the other things that are out there,” he says.
Barnard describes cyber as being ‘the great unknown’ and says Markel is working very hard on this topic, not least because it is important to get a good definition of what cyber covers in such a rapidly changing area of technology.
In the meantime for Markel it’s business as usual around the rest of the world. The company has people in Bermuda and London who will focus specifically on the Irma factor, but the rest of the company will work as normal to service the rest of its clients.
Barnard also points to the large amount of capital in the market at the moment, but stresses that it is still too soon to speculate on the long-term impact of the hurricanes on that flow of capital.
“For investors it’s been an interesting time,” he says. “We’ve seen some data points from the hurricanes but there’s been nothing this big in the history of their investment strategies—and they had not one but two, Harvey and Irma, so I imagine that’s not going to make their year look too good. Hurricanes, like earthquakes, tend to ‘cluster’, so we could be in a period with heightened frequency of land-falling cats.
“Look at the previous eight or 10 years they’ve been in; go back to 2006, when a lot of them came in. Since then any bumps in the road have been relatively small ones. This is the first data point for investors that will alter their earnings in almost 12 years, outside of 2011. And we’re still just halfway through the hurricane season.”
According to Barnard, there will be a sting in the tail from Hurricane Harvey. He says there will be a big environmental impact from the hurricane that the market will have to factor in: as well as the flooding, chemical plants, oil refineries, etc, were affected—all of that will have to be cleaned up.
All these factors combined mean that for Markel the road ahead will be challenging, but interesting, he concludes, with the final thought that the legal and adjuster risk in Florida should also not be underestimated.
Andrew Barnard is senior managing director, head of international property catastrophe and retro reinsurance at Markel. He can be contacted at: email@example.com