Milton will prove relevance of reinsurance
Hurricane Milton is an “unprecedently” large storm that will be a sizeable event for Florida, according to Vantage Risk Bermuda reinsurance CEO Chris McKeown.
McKeown, who also oversees Insurance-linked securities and innovation for Bermuda-based Vantage, was speaking on a CEO panel at ILS Bermuda’s Convergence conference yesterday, 12 hours before Milton was due to make landfall in Florida.
Asked about catastrophe capacity for the fifth hurricane to make landfall in the US this year, McKeown joked: “I thought we had retired unprecedented” before adding that the storm would be “sizeable even to the folks in Florida and the insurance industry”.
McKeown said the hurricane, which returned to Category 5 size during the day before weakening prior to landfall would prove the reinsurance industry was “highly relevant”.
“We will see if we are as relevant as we should be due to the role the government takes in insurance in Florida,” he said. “there is a lot of risk in the world today and Milton is a reminder that even if seems to be unprecedented, it is not the worst we might see.”
McKeown later said the Florida insurance market had been “slightly dysfunctional for some time”, having experienced state intervention and Milton would “stress that market out”.
McKeown was on the panel with Mark Wheeler, co-chief executive officer of Mosaic. The moderator was Richard Lowther, founder and managing partner of Integral ILS.
Asked about the use of technology to guide decision making, but noted that predictions that 2024 would have an active Atlantic hurricane season but a quiet Pacific season had proven to be inaccurate as the Pacific season has been busy.
He said more people had paid attention to the early hurricane forecast than in previous years, but he also noted that about 60% of catastrophe reinsurance coverage was written in January before the forecasts came out.
He added that investors were interested in flexibility and liquidity which could be achieved by trading catastrophe bonds, but noted that trading was still not as active in the secondary markets as some investors would like.
Discussing the insurance cycle, Wheeler said that during his career in insurance, he could remember three occasions when people said it was the end of the cycle, adding it was more important to think about rate adequacy rather than how to ride the cycle.
But he said what had changed in 30 years was the emergence of credible models and risk assessment and more orderly cyclical changes.
Wheeler noted that specialty lines, which Mosaic underwrites, were very difficult to model. He said this was one of the reasons why Mosaic chose them when it was launched.
He said it looked for lines where there were high barriers to entry and noted that this was one of the reasons it did not write natural catastrophe – it was too accessible.
He said Mosaic, which draws 50% of its capacity from third parties, also wanted lines with loss ratios that were less than 90% over the length of the insurance cycle . Underlying exposure growth should also exceed gross domestic product in order to beat the market on growth and margin, he said.
Mosaic, in common with Vantage, also uses technology in depth. He noted that in cyber, which is Mosaic’s fastest growing line, “there is tons of data” and the company uses artificial intelligence telemetry to analyse it.
He added that capital is still a massive constraint for cyber, with a need for more reinsurance capacity.
Wheeler said not having legacy technology was a huge advantage for Mosaic, and said processing speed was important for the company, but not its “secret sauce”. He said the risk analytic side was “hugely exciting”.
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