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11 March 2025News

Re/insurance industry must innovate: Aspen's Cloutier

The re/insurance industry needs to rethink some of its structures if it wants to bridge protection gaps and provide safety and security to people and businesses around the world.

That was the message from Mark Cloutier (pictured), the chief executive officer of Aspen and the chairman of the Association of Bermuda Insurers and Reinsurers (ABIR). He was speaking before the Bermuda Risk Summit, which is taking place in Bermuda this week.

Cloutier, who spoke to Bermuda:Re+ILS last week, said the industry needs to develop new structures and to be more transparent about how it measures and prices risk if it wants to stay relevant.

Cloutier acknowledged that the recent California wildfires showed a widening gap between the economic damage caused by the blazes and insured losses. This showed why the industry needs to come up with solutions that give people and more companies more security.

“What I'm advocating for is transparency and solutions where we can deploy our capacity in a way that does not necessarily have to be on a win or lose basis, but to do it with transparency in the accounting and the reporting around those products,” he said.

Cloutier said introducing new products that would finance risk would require a shift from traditional insurance products that include a form of risk finance as opposed to risk transfer.

He added that the growth of third-party capital for insurance-linked securities demonstrated that there were investors who wanted to enter the insurance market.

“The supply of third-party capital in the sector continues to be quite strong,” he said. “So, the appetite is there. If we could figure out the structures, we could create, by virtue of the gaps that we are seeing, additional demand for structures that meet the needs of consumers and businesses today alongside the traditional products we offer."

Cloutier said regulators had an opportunity to be more flexible about structures as a means of narrowing the protection gap.

The LA wildfires had shown the need for this, he said. And Bermuda, using the skills and the techniques that we can bring to the table, was well-placed to take the lead, especially at the Risk Summit where California Insurance Commissioner, Ricardo Lara, will be speaking.

“I think his coming to Bermuda clearly illustrates, at a time like this, the importance of the Bermuda market to the US economy and the US system. Clearly, we are a very important and meaningful market.”

Turning to the broader impact of climate change, Cloutier said weather-driven events were not going away and would continue to affect the re/insurance industry.

He said risks were concentrating in the very places that people want to live, which made it very difficult to insure those areas.

“Again, I think the need is for us to be viable,” he said. “We have to do that with creativity and with innovation in the product set that we're offering.

“It can't be that we are going to change our loss-cost assumptions and frequency assumptions, and redo our pricing based on a new shorter-term average, because that will just create products that people can't afford.

“So, I don't necessarily see light at the end of the tunnel at this stage. We're struggling with it right now and the natural response has been to risk manage it. We have an obligation to our shareholders to earn them a return. We're putting a lot of risk on them today. We have an obligation to get them a good return for taking that risk.

“But all of us risk managing it is what is contributing to the gaps.”

Cloutier said some of the regulatory and legal reforms enacted in in Florida in the last two years had begun to succeed, showing what could be accomplished.

“Florida is an example of initiatives that can be taken on the risk side of the equation to moderate the ancillary risks,” he said. “It's going to take a responsible partnership between the sector and governments to ensure that we can offer a viable solution.”

But he added: “The challenge with the United States is 50 state regulators, each with their own unique set of circumstances that they're trying to solve, which makes it pretty challenging.”

Cloutier answered questions from Bermuda: Re+ILS on a number of other issues. The key points were:

Adverse developments in casualty: “Casualty will remain a concern until we see action being taken around legal system abuse and tort reform.”

Bermuda Corporate Income Tax: “Bermuda has been about much more than tax for a long time now. The implementation has gone well and the Government has done a good job on behalf of business in their efforts with the OECD.”

The state of the Bermuda market: “2024, in the round, shouldn't be viewed as an easy year. Yet we are providing a lot of capacity and paying billions of dollars in claims. We are serving our purpose, and I think the market is in great shape, and certainly we believe we are well-positioned to execute on our strategy.”

Goal for 2025: “There's a recognition among our member companies that we want to invite more Bermudians to participate in the opportunity that our sector represents. So broadening access to Bermudians is something that I am focusing on.”

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