Brave new world

COVID-19 special report: Analysing the impact of coronavirus on claims,

rates and renewals as re/insurers adjust to the “new normal”

30 BI dangers lurk
for carriers 34 The P&C rate
picture 44 CIOs weather
the storm 62 LatAm: State of
the market

www.reactionsnet.com May 2020

When the name on the door is Berkshire
Hathaway, it stays Berkshire Hathaway.

In a rapidly changing industry, Berkshire Hathaway Specialty Insurance provides

welcome certainty, with the enduring strength of Berkshire Hathaway’s top-rated
balance sheet and 70 year insurance industry track record. Look no further for
stable capacity, creative solutions, and stellar service. We’ll be here, year after year.

A++ A.M. Best AA+ Standard & Poor’s $333.9 billion total admitted assets* $202.5 billion policyholder surplus*

Atlanta | Boston | Chicago | Houston | Indianapolis | Irvine | Los Angeles | New York | San Francisco | San Ramon | Seattle | Stevens Point
Adelaide | Auckland | Brisbane | Cologne | Dubai | Dublin | Hong Kong | Kuala Lumpur | London |Macau | Madrid | Melbourne | Munich | Paris | Perth | Singapore | Sydney | Toronto

*Balance sheets as of 12/31/2019 for the Berkshire Hathaway National Indemnity group of insurance companies. www.bhspecialty.com

You get what you pay for
I
’ve always believed that the
best strategy for dealing with
challenging times is to follow my
grandfather’s advice: keep smiling.
Maintaining your sense of humour
is the key to navigating stressful
situations.
Amazing as it might seem, one task
that has become the most stressful
for me during the lockdown is one
that’s usually counted among the most
mundane: food shopping.
Currently I’m camped out in
suburban New Jersey, at my fiancée’s
house with her two teenage sons.
We’re not ordering any takeout, in
order to limit our possible exposure
to the pandemic. Cooking every night
has become the norm, and those who
have teen boys are aware of how much
they eat. (To be fair, I did the same
when I was their age – and now that I
consider it, I must confess that my diet
really hasn’t changed very much since
then. Perhaps I should correct that,
if the world ever returns to a state in
which I don’t have to wear a mask and
gloves to go outside.)
My future wife and I went food
shopping again this week. While
doing our best to social distance (not
that many other shoppers were doing
the same, mind you, which is one of
the things that makes shopping an
unnerving experience), we broke out
our list and set about picking up some
essentials along with the requisite
meat and poultry products so that we
can stay ahead of the curve, food-wise.
Instead, we left with an overflowing
shopping cart the likes of which I’ve
never had in my life. The bill was
nearly $500.
As someone who has never spent that
much on groceries ever, I almost gagged.
It was only during the process of
wiping all the groceries down with
disinfectant (another tedious but
necessary task for all of us trying to
keep germs out of the house) when
I was reminded once again that you
do, in fact, get what you pay for. The
house was now stocked with food once
again, and we wouldn’t have to go out
again for at least another eight days or
so – that is, if the Doritos are rationed
appropriately.
For the property & casualty industry,
the phrase “you get what you pay for”
has been turned on its head. Rather, it’s
what insureds did not pay for – and in
countless cases, are demanding anyway
– that is keeping executives up at night.
I’m referring to business interruption
coverage stemming from property
policies, for businesses forced to close
their doors by government authorities
desperate to curb the spread of
COVID-19. Many of those business
owners – restaurants, bars, nail and
hair salons, florists, clothing stores –
are suffering, their revenues choked by
social restrictions that keep them from
operating. Many of them will never
re-open, if the lockdowns continue for
an extended period.
Outside, the world economy is still
on the ropes. In the U.S., 3.8 million
workers filed jobless claims just before
this issue went to press, bringing the
six-week total to more than 30 million
unemployed despite trillions of dollars
in stimulus spending.
I’m not unsympathetic to people
in serious financial plight. I’m a
journalist – trust me, I’ve been there.
But insurers simply should not – and
cannot – be forced to pay out for losses
that it neither priced for, nor provided.
I spoke yesterday with David
Sampson, President and CEO of the
American Property Casualty Insurance
Association (APCIA), for a story to
May 2020
Editor’s note 3
appear in Reactions’ twice-weekly
COVID-19 Briefing e-newsletter.
Earlier that day, the APCIA had
put out some statistics that help
illustrate just how dire the situation
would become for insurers were
they legislated into paying billions in
unanticipated BI losses.
Taken together, the surplus for all
of the U.S. home, auto and business
insurers that would pay all future
losses is roughly $800bn, with the
combined capital of the top business
insurance underwriters representing
only a fraction of that amount.
The APCIA estimates that closure
losses for small businesses with fewer
than 100 employees are between
$255bn to $431bn per month. Closure
losses for small businesses with fewer
than 500 employees, meanwhile, are
estimated to reach between $393bn to
$668bn per month.
Without some manner of federal
backstop to aid in footing that bill,
insurers would face some crippling
solvency issues. While some possible
scenarios are currently being debated,
the P&C industry would do well to
cooperate on state and federal levels
and work to be part of the solution.
They simply cannot afford not to.
Shawn Moynihan
nihan
Editor-in-Chief
4 Contents
INSIDE
May 2020
Editor’s Note
03 Shawn Moynihan
You get what you pay for
COVID-19 Special Report
06 BI relief under property policies?
Interpretation by courts will be critical
08 Deep global recession ahead
Social distancing adds to collateral damage
10 Fixing the COVID-19 capital drain
Why more capital raising may be on the horizon
12 Will COVID-19 make or break pandemic models?
Examining uncertainties around pandemic
modelling
16 ‘You mean I have to come in?’
EPLI, workers’ comp claims expected to surge
18 Event cancellation: The COVID-19 factor
Losses mount as major events are put on ice
20 Staying cyber-safe remotely
Beating the hackers while working from home
21 Reactions infographic
Pandemic perspective
22 Finding a state-backed pandemic solution
Governments needed to pick up the top layer
of losses
24 E&S players responding in a COVID-19 world
How the coronavirus is shaping surplus lines
business
28 Aviation insurers respond as clients face crisis
Examining the rate picture as airlines fight
to survive
Features
30 BI dangers lurk for carriers
Increased scrutiny threatens unintended claims
payouts
32 MGA conduit that’s made to measure
Bill Jewett discusses his new company, Obsidian
34 COVID-19 and P&C rates: A ‘hardening’ question
How will the pandemic affect pricing?
38 Life’s a Beach
Catching up with CEO Jason Howard
40 Leading in the age of COVID-19
QBE Re’s Stephen Postlewhite takes the reins
60 How COVID-19 might affect ILS take-up
What past events could tell us about what’s to come
May 2020
62 LatAm in 2020: State of the market
Why the socioeconomic stakes are higher than ever
66 MENA market report
COVID-19, collapsing oil prices create a perfect
storm
70 Construction conundrum
COVID-19 set to delay, mothball some projects
Investing in Turbulent Times:
CIOs in Focus
44 Rollercoaster ride
CIOs navigate the current financial landscape
48 Protecting assets in a crisis
SCOR Global Investments’ CEO François de
Varenne
49 Returning to equities with caution
Pool Re’s Ian Coulman on difficult decisions facing
CIOs
50 Asset class spotlight: fixed income
DWS executives discuss adapting investment
strategies
52 Fixed-income crisis management
As the pandemic spreads, insurers need
experienced active fixed-income managers, writes
Guggenheim Investments’ Anne B. Walsh, JD CFA,
Chief Investment Officer–Fixed Income
56 Securing assets in a dangerous time
CIOs of Sompo International, Sun Life Financial
weigh in
58 Adapting to investment shock
Allianz UK CIO Ying Ye on long-term opportunities
Opinion
65 Building the future
Making the case for U.S. infrastructure investment
Regulars
72 People moves
Summarising the industry’s latest personnel
appointments
74 Social scene
Re/insurance companies make their presence felt
on social media
76 Editorial board
Reactions’ editorial advisory board members
for 2020
78 Crossword
Reactions’ monthly brain teaser
 Contents 5

62 30

LatAm: State of the market BI dangers lurk for carriers

Civil unrest threatened Unexpected payouts ahead?

40 34

Leading in the age of COVID-19

QBE Re’s Postlewhite takes the reins

44

Rollercoaster ride COVID-19 and P&C rates

CIOs weather the storm A ‘hardening’ question

Editor-in-Chief Publisher Printing: Buxton Press, UK Reactions (ISSN No. 002-263) is an

Shawn Moynihan Goran Pandzic online information service supported by a
+1 212-224-3474 +1 212-224-3711 Reactions: Level 1, 29 Ludgate Hill, print magazine published by Euromoney
shawn.moynihan@euromoneyplc.com gpandzic@euromoneyny.com London EC4M 7NX, UK Institutional Investor PLC.

London Editor Head of Programming & Events Annual subscription rates: ©Euromoney Institutional Investor PLC
Mark Richardson Elizabeth Wu Corporate multi-user rates are available, London 2020. Although Euromoney
+44 (0)20 7779 8142 +1 212-224-3713 please contact gpandzic@euromoneyny.com Institutional Investor PLC has made
mark.richardson@euromoneyplc.com elizabeth.wu@euromoneyplc.com Single user: £1,092 / $1,837.50 / €1,485 every effort to ensure the accuracy of this
publication, neither it nor any contributor can
Associate Editor Sales Manager Subscription hotline: accept any legal responsibility whatsoever
Marc Jones Patrick McCulloch London: +44 (0)20 7779 8999 for consequences that may arise from errors
+44 (0)20 7779 8105 +44 (0)28 95912905 New York: +1 212 224 3570 or omissions or any opinions or advice
marc.jones@euromoneyplc.com patrick.mcculloch@euromoneyplc.com given. This publication is not a substitute for
Back issues:
+44 (0)20 7779 8999 professional advice on a specific transaction
Copy Editor Design & Production
Jamie Gallagher Siobhan Brownlow Subscribers: £27.50; Non-subscribers: £45.00
+1 212 224 3322 www.rsbdesign.co.uk ISSN 0953-5640
jamie.gallagher@insuranceinsider.com
Divisional Director Customer services:
Contributing Editor Jeff Davis +44 (0)20 7779 8610
Garry Booth
Managing Director
Tim Wakefield

May 2020
6 COVID-19 special report

BI relief under property

policies? It could happen.
Why interpretation by the courts will be critical in months to come.
By Shawn Moynihan, Editor-in-Chief

T
he Oceana Grill, in New
Orleans. Thomas Keller,
the famed chef behind such
notable restaurants as The French
Laundry in Napa Valley, Calif. The Big
Onion Tavern Group, in Illinois. The
Indiana Repertory Theater in Indiana.
All very different establishments, but
they all seek the same thing: recovery
from their insurance policies they
claim were triggered as a result of
COVID-19 exposure.
To date, 10 separate COVID-19
coverage actions have been filed in
seven U.S. states: Louisiana, Texas,
Illinois, Oklahoma, California, Indiana
and Florida. While a half-dozen of the
complaints allege that governmental
orders impacted their businesses,
one seems to be seeking coverage for
COVID-19-related losses incurred
both prior to and after the state
government order was issued.
The P&C industry is watching
these high-profile cases closely, as
established case law may determine
the fate of similar policyholders that
could be denied recovery for losses
they claim are directly due to the
pandemic.
Questions around business
interruption coverage are of particular
importance to small businesses
that have had to shut down or are

I n a substantial number of policies, stock language

does not define physical damage, which “has created
a lot more flexibility or range for the courts. I could
easily see policies, especially those with no solidly
defined term for physical loss or damage, extending to
include the inability to access the premises or lack of
functionality of the property.”
Scott DeVries, Winston & Strawn LLP

May 2020

operating at limited capacity, says
Robert Tomilson, a Partner at Clark
Hill and based in Philadelphia, Pa.
“They’re looking for a lifeline that
would save them before they go under.
Many of these are businesses that don’t
have cash reserves to rely on,” he notes.
Plaintiffs’ attorneys have been
very aggressive in seeking this type
of business, he says, promising
policyholders that if they have
a property policy, then their BI
losses may be covered. But that is a
dangerous promise to make – and
COVID-19 tainting is not an easy thing
to prove to one’s insurer or a court.
In order to trigger a property policy,
physical damage to the establishment
has to be established. However,
Tomilson has seen cases in which
airborne damage due to elements like
ammonia or gas have been interpreted
as constituting “physical” damage
without visible destruction.
“That’s the sort of analogy that
they’re going to try and make,” he says.
“Relying on that case law, the presence
of COVID inside the premises
physically is a damage to the property.”
Scott DeVries, Partner at Winston
& Strawn LLP and based in San
Francisco, notes that in the past 10 to
20 years he’s witnessed a significant
shift from courts’ – and insurers’ –
once-rigid enforcement of specific
physical damage to include “invisible”
elements.
In a substantial number of policies,
stock language does not define
physical damage, he explains, which
“has created a lot more flexibility or
range for the courts. I could easily
see policies, especially those with no
solidly defined term for physical loss
or damage, extending to include the
inability to access the premises or lack
of functionality of the property,” he
adds, stating that lack of functionality
can be deemed equivalent to property
damage.
“I suspect there will be a number
of courts that go in that direction,
especially with the number of cases
we’re seeing,” he notes. “There are a
lot of businesses that are tendering
claims.”
“This is an issue that insurers,
brokers and others are raising, saying
that the coronavirus hasn’t caused
COVID-19 special report
direct physical damage to your
property,” says Kim Winter, Partner,
Head of Insurance Recovery and
Counseling Group at Lathrop GPM
LLP and based in Kansas City, Mo.
However, the closest one could come
to a determining factor right now is
the insured’s policy language.
“ The question, and why
we think there’s still
coverage in many cases,
is that the language is
nuanced. … The trigger
generally requires a
direct physical loss of or
damage to property. But
whether there will be
coverage depends a lot
on your precise policy
language.”
Kim Winter, Lathrop GPM LLP
“The question, and why we think
there’s still coverage in many cases,
is that the language is nuanced,” she
explains. “These aren’t cookie-cutter
policies. The trigger generally requires
a direct physical loss of or damage to
property. But whether there will be
coverage depends a lot on your precise
policy language.”
The question of whether the policy is
triggered, Winter adds, also depends
on how the courts in the insured’s
jurisdiction have interpreted that
policy language, “but many courts have
not addressed that yet. It’s an open
question in many jurisdictions.
“It will be interesting to see how the
May 2020
7
courts come down on policy language,
and whether the virus exclusions will
apply,” she adds.
Another consideration: is the virus
on your premises extensive enough
to require “physical damage” that
it has to be extensively cleaned?
Additionally, when the burden is on
the policyholder to prove physical
loss, without the ability to test for
coronavirus on the premises, is it
enough to have a presumption that
there’s contamination on our site if one
of your employees was infected while
on the job?
One issue in proving such tainting,
Tomilson says, “is that it’s a physical
harm that can be alleviated
immediately. We know this because
other essential businesses are
open.” Whole Foods, he offers as an
example, is having little problem; its
stores enforce social distancing, its
employees are wiping down products
and surfaces.
“Another problem with proving
physical harm is: who says it was
actually there?” he asks. “If your chefs
and waitresses contracted it, that
makes things a little easier in terms
of making a case. If not, it’s more
amorphous. How do you show that
[your establishment] had it?”
Tomilson believes it will take
anywhere from three to six months
for some of the aforementioned
high-profile cases to be resolved by
declaratory judgment action; until
then, their claims – and the viability of
thousands of similar ones – remain an
open question.
“It’s not going to be quick and easy,”
he says. Plaintiffs, he adds, “are going
to take this, and they’re not going to
give up on it. This will go on longer
than the industry would like.”
While insurers will raise virus
exclusions as bases to deny coverage,
Winter says it is generally the
insurer’s burden to prove that an
exclusion applies, putting the odds in
policyholders’ favour.
In the end, “everything depends
on the language of your policy,” she
stresses. “Some have broad virus
exclusions, others aren’t as broad.”
Policy reviews, she adds, will be
critical. “It’ll be interesting to see what
comes out of this.”
8 COVID-19 special report
Deep global
recession ahead
Fitch, S&P say extended social distancing is adding to
collateral damage.
By Garry Booth, Contributing Editor
A
grim picture of the global
economy is painted by rating
agencies Fitch and Standard
& Poor’s as unemployment figures take
a turn for the worse.
S&P Global now sees global GDP
falling by 2.4% this year due to the
COVID-19 crisis, with the U.S. and
eurozone contracting 5.2% and 7.3%,
respectively.
“While the very near term looks
bleak, infection curves are flattening
and the focus has turned to the
recovery,” says Paul Gruenwald, Global
Chief Economist at S&P Global. “Its
length and pace will depend on the
combination of health and economic
policy, the response of people and firms,
and the condition of the labour market
and small and medium enterprises.”
In a note, S&P Global said services
will be hit harder than manufacturing;
discretionary consumer spending
will be hit harder than spending on
necessities; and smaller business will
be hit harder than larger ones.
Moreover, lockdowns and social
distancing constraints now look to be
in place longer than expected, which
will cause a much sharper decline in
activity than previously thought.
S&P expects global growth to
rebound to 5.9% in 2021. “The balance
of risks remains on the downside, as
much can go wrong with our baseline
path on the health, economic, and
policy fronts,” Gruenwald says.
A deep global recession in 2020
is also Fitch Ratings’ latest baseline
forecast, with the rating agency’s Chief
Economist Brian Coulton calling
another round of huge cuts to its GDP
forecasts. Fitch now expects world
economic activity to decline by 1.9%
in 2020 with U.S., eurozone and UK
GDP down by 3.3%, 4.2% and 3.9%,
“ We currently
expect claims to be
manageable, with the
majority coming from
mortality losses for
life insurers and event
cancellation and
business interruption
for non-life insurers.”
Graham Coutts, Fitch Ratings
respectively; China’s recovery from the
disruption in Q1 2020 will be sharply
curtailed by the global recession and
its annual growth will be below 2%.
The forecast fall in global GDP for
the year as a whole is on par with
the global financial crisis, but the
immediate hit to activity and jobs in
the first half of this year will be worse,
Coulton warned in a note.
Revising the assumptions used in
its March 2020 forecast, Fitch now
judges that lockdowns could reduce
GDP across the EU and U.S. by 7% to
8%, or 28% to 30% annualised in Q2.
“A very rough rule of thumb for
the direct impact would point to
an additional 2 percentage points
May 2020
knocked off from annual GDP for each
extra month of full lockdown. But a
lengthier shutdown would also cause
more collateral damage – in the form
of unemployment, corporate closures
and weaker investment – and leave a
longer lasting impact on activity in the
medium term,” Coulton tells Reactions.
Working on the assumption that
the health crisis is broadly contained
by the second half of the year there
should be a decent sequential recovery
in activity as lockdowns are removed,
some spending is re-profiled from
first-half 2020, inventories are rebuilt
and policy stimulus takes effect, Fitch
said in its note.
But this must be set against different
factors amplifying the depth of the
dislocation, including job losses,
capital expenditure cuts, commodity
price shocks and the rout in financial
markets.
The economic policy response
has been rapid and aggressive, says
Coulton: “It has included truly
massive central bank liquidity
injections both through additional
QE and the introduction of a host of
new credit facilities, the extension
of sovereign guarantees for private
sector borrowing, fiscal stimulus and
regulatory forbearance.
“Until the health crisis itself is
over, this will only serve as damage
limitation. In the very near term, the
policy support is essentially aimed
at providing a bridge for the private
sector to reach the other side of the
lockdown without an excessive amount
of job losses and bankruptcies in the
interim. The stimulus will also aid
the post-crisis recovery back towards
normality, but that will take quite
some time,” Coulton warns.
Graham Coutts, a Senior Director
in the insurance team at Fitch, says
that the main threat to insurance
companies from the pandemic is
the resulting disruption to financial
markets. “Falling equity markets,
widening credit spreads and declining
interest rates are all negative for the
insurance industry,” he tells Reactions.
“We currently expect claims to be
manageable, with the majority coming
from mortality losses for life insurers
and event cancellation and business
interruption for non-life insurers.”
10 COVID-19 special report
Fixing the COVID-19
capital drain
Whether through selling equity and debt, or through third-
party investors, more capital raising may be on the horizon.
By Mark Richardson
F
or the majority of re/insurers
the shock to the balance sheet
is going to be one of the most
pressing immediate concerns to arise
from the COVID-19 crisis.
After years of increasing capital in the
market, the industry was well-positioned
to handle the shock. But that doesn’t
mean there won’t be implications from
the widespread drop in capacity levels
expected across all carriers.
Moody’s has already stated it expects
reinsurers to be “judicious in allocating
catastrophe capacity at June/July
renewals given uncertain economic
conditions and volatile financial
markets,” and beyond that companies
may become limited in what growth
they can achieve.
Firms have already been responding
to fill this capital hole. QBE recently
announced it will issue 145.5m new
shares for a $750m capital raise (equal
to around 11% of QBE’s existing issued
capital), alongside a further $75m
raise from retail investors.
“The capital plan we outlined
positions us to navigate this period
of extreme uncertainty with
demonstrable strength and gives us
“ The time is now for the insurance
broking community particularly
to step up and offer other forms of
contingent capital for carriers
the flexibility to pursue organic growth
opportunities that may arise over the
medium term,” QBE CEO Pat Regan
said in a note.
Hyperion X Managing Director of
Analytics David Flandro says more
capital raising will be seen across the
industry to cope with this crisis.
“COVID-19 represents a big shock
to the sector’s balance sheet,” he tells
Reactions. “On the one hand, claims
are going to increase, but the even
bigger near-term concern is capital.
The insurance sector is heavily
invested in fixed income, and unless
you’re talking about major government
securities, asset values have generally
diminished without any short-term
offset on the liability side.”
Although the market is volatile,
some assessments put capital levels
worldwide down by 5% to 10%, he
says – marking a significant event that
hasn’t been seen in a number of years.
“An asset-driven capital devaluation
hasn’t happened since the financial
crisis, and indeed for many carriers
since the dot.com bust. It just means
that for the first time in at least a
decade we’ve got a dearth of capital in
areas,” he adds.
some area
But, he ssays, there are multiple
capital and reinsurance solutions
available tto clients, including third-
capital. Having earlier this
party capi
month annannounced a partnership
that need it or want it.”
David Flandro, Hyperion X
May 2020
with ILS collateralised reinsurance
specialist Vario, Flandro is an obvious
proponent of this option.
The two companies are offering
whole account collateralised
reinsurance, protecting a carrier’s
accounting-year claims ratio above
a certain limit with investor-backed
funds. It thereby provides contingent
capital to carriers, helping them
through this current period.
“We think this is a solution that fits
the current environment,” he says.
It’s an option that is competitive with
debt capital and currently more efficient
than most equity capital, and is the
type of alternative Flandro says brokers
should be helping clients to obtain.
“Companies are exploring equity and
debt capital raising, but the costs of
these forms of capital have really gone
up during the crisis, not to mention
the cost of traditional retrocession pre-
crisis,” he adds.
“The time is now for the insurance
broking community particularly
to step up and offer other forms of
contingent capital for carriers that
need it or want it.”
On the investor side, Flandro says
those that back traditional ILS products
are also likely to back whole account
stop-loss cover, asserting it remains less
correlated to other investments.
AM Best has predicted a decrease
in third-party capital at upcoming
reinsurance renewals in June “as
investors are pressured by collateral
and margin requirements owing to the
suddenly volatile markets.”
However, Flandro says most ILS
investors would want to maintain the
less-correlated diversification benefits
offered by carriers’ technical results,
even if they were finding opportunities
in other areas.
“The relative attractiveness compared
to say, high yield, is there because it’s a
less cyclical risk type,” he adds. “So it’s
still diversifying, and market appetite
appears robust.”
Masters of the art of specialty risk.
Ethos Specialty Insurance has the right mix of products, services and distribution to inspire success.
Whether it’s New York General Contractors and Owners GL, Reps and Warranties, Commercial
Property or Wind Deductable Buy-Back insurance, call today or visit ethosspecialty.com. We are part
of Ascot Group, a global specialist in insurance and reinsurance.

Adam Schnell Navine Aggarwal

Casualty GL and Construction M&A Insurance
646-956-1560 646-956-1562
adam.schnell@ethosspecialty.com navine.aggarwal@ethosspecialty.com

David Malcom Rory Cline

Property Ethos Chief Executive
404-419-2124 646-356-8102 AN ASCOT GROUP COMPANY
david.malcom@ethosspecialty.com rory.cline@ethosspecialty.com
12 COVID-19 special report
Will COVID-19 make or
break pandemic models?
The uncertainties around pandemic modelling are daunting, catastrophists admit.
By Garry Booth, Contributing Editor
W
hen a natural disaster
such as a hurricane
or an earthquake
strikes, attention quickly turns to
catastrophists and their models to
find out how the property & casualty
insurance market will be affected.
The modellers are usually quick to
act, producing regular loss estimates
and revising their predictions just
as the dust settles. Even before such
peak loss events occur, insurance and
reinsurance carriers routinely run
realistic disaster scenarios through
their models – proprietary and third-
party – to see how P&C portfolios
would fare.
Property cat modelling is now
an accepted risk assessment tool
that’s been widely adopted on the
basis that it has been “validated” by
plentiful data and good science. With
COVID-19 playing out on the global
stage, pandemic models on the other
hand are getting their first big test.
Although pandemics like COVID-19
do not behave like a property
catastrophe event, it hasn’t prevented
catastrophists from using the scant
available data and science to build
pandemic models that aim to improve
life and health insurers’ understanding
of their financial exposure.
The problem is that the usefulness of
May 2020
any catastrophe model depends hugely
on the availability of relevant data and
science. And major pandemics rarely
happen more than twice in a century.
In a recently published critique of
catastrophe modelling, Prof. Daniel
J. Rozell, research professor in the
Department of Technology and Society
at Stony Brook (N.Y.) University,
discussed the issues that he believes
limit the value of pandemic models for
estimating financial exposure, disaster
response, or social policymaking.
In a paper published last August
– shortly before the coronavirus
outbreak – he wrote that while
the insurance industry should be
 COVID-19 special report 13

“ We must be able to capture enough observed data to

sufficiently understand the observed trends to make
appropriate selections of model parameters and explain the
uncertainty around those parameters and outcomes…
There is little visibility around the final scope of this very
dynamic event, which is set to remain for the weeks ahead.”
Dr. Gordon Woo, RMS

commended for tackling such an
important topic, the uncertainties
are daunting. With pandemics,
because the uncertainty due to lack of
knowledge is large compared to the
natural variability, the uncertainty
in the model output will be under-
represented.
Another big issue for pandemic
catastrophe models is that diseases can
behave unpredictably due to evolving
pathogens or changing demographic
conditions, for example.
Prof. Rozell said that trust in any
catastrophe model depends on
assurances of validation (history
matching). That may be acceptable
in the case of relatively stable
processes, such as earthquakes, but
trust is necessarily more tentative for
pandemic catastrophe models that
depend on “non-stationary” processes.
After catastrophic events, modellers
have an opportunity to check their
model against actual losses, so it’s
not surprising that catastrophe
model outputs will change after
these recalibrating updates, he notes.
However, it’s difficult to detect changes
in the probabilities of extreme events
that are caused by non-stationary
processes.
Ultimately, savvy [model] users may
know what level of confidence to put
in their models, but shortcomings
in current practices in uncertainty
quantification require that model
interpretation remains an art as much
as a science until more progress is
made, he wrote.
Prof. Rozell believes that the
COVID-19 pandemic does present a
rare extreme event that can be used
to recalibrate pandemic catastrophe
models, however.
“This new event is informative
because it is difficult to assess risks
based on old events. For example,
it has been difficult to judge the
likelihood of a modern event on
the scale of the 1918 influenza
pandemic,” he tells Reactions. “How
does one integrate the substantial
improvements in medical technology
with increased risk from international
air travel or shortages of medical
technology (especially in less
developed nations)?”
The prominent third-party cat model
providers AIR Worldwide and RMS
both offer global pandemic models for
use by life and health insurers.
“We strongly believe there is
substantial evidence to prove that
catastrophe models have helped
companies better understand the risk
they face, which leads them to make
better financial and other related
business decisions,” says Doug Fullam,
Director of Life and Health Modelling
at AIR Worldwide. “This also can lead
to a reduction in insolvencies, therefore
giving firms the ability to meet their
obligations and own their risk.”
In April, AIR also launched an
interactive tool, powered by its
pandemic modelling data, to provide
coronavirus case and death projections
worldwide for the following four
weeks. The data is updated on a daily
basis to project one day further into
the future. The modelled projections
of the pandemic are available globally
at a country level and the outputs
consider variations in data availability
and reliability, including under-
reporting.

May 2020
14 COVID-19 special report

Fullam acknowledges that a
dynamic event like COVID-19 poses
big challenges to modellers. “The
two biggest issues are Effectiveness
and Timeline – how effective are the
current measures shaping the spread
rates, and how long will this event
last? It seems the current response
net number of infections. Additionally,
the constraints clearly are challenging
for many people. How long will
savings and government programmes
keep people afloat?”
RMS catastrophist Dr. Gordon Woo
cautions that modelling the current
pandemic requires a balance between
model parameters and explain the
uncertainty around those parameters
and outcomes.”
Dr. Woo stresses that RMS doesn’t
issue industry loss estimates to the
market for events at their early stages,
or when an event is still active, as the
uncertainties are so significant: “There
is little visibility around the final scope
of this very dynamic event, which is set

“ Analysts and experts often do not retrospectively test

the accuracy of their own prior forecasts, so it will be
important to track the predictions of fatalities and
to remain for the weeks ahead. Factors
include significant uncertainties
around the virus itself, testing,
infection levels, and local spread.
economic impact over time. Given the dreadful cost There are wide variations in the
of this pandemic, we have an obligation to become counter-response efforts and public
wiser from it.” health measurers per country, and
adherence to recommended measures
Prof. Daniel J. Rozell, Stony Brook University
by the public.”
Prof. Rozell believes the industry
can learn a lot from the continuing
is slowing down the spread of the data and assumptions: “The RMS tragedy: “Analysts and experts
virus; however, even if we slow the Infectious Disease Model framework often do not retrospectively test the
spread it may mean that you don’t can be used to understand the accuracy of their own prior forecasts,
become ill three weeks from now, but impacts of COVID-19 and the likely so it will be important to track the
alternatively seven weeks from now progression as the event unfolds. predictions of fatalities and economic
you do,” he explains. However, we must be able to capture impact over time,” he said. “Given the
“This can help the healthcare enough observed data to sufficiently dreadful cost of this pandemic, we
industry deal with the case load, but it understand the observed trends have an obligation to become wiser
may only have a small impact on the to make appropriate selections of from it.”

How will life & health insurers fare?

Coronavirus represents a 1-in-20-
year mortality event for the life
sector. The many uncertainties
and variables still in play with
the COVID-19 pandemic make
it difficult to know just how hard
life & health insurers will be hit,
according to Colin Dutkiewicz,
head of life business within Aon’s
Reinsurance Solutions business.
Deaths from COVID-19 are still
an unknown quantity at this stage
and, until a vaccine is found, mortality from future waves of the
pandemic also need to be considered, Dutkiewicz explains: “In
total we estimate an additional 20% mortality cost to insurers, i.e.,
relatively low given that the mortality effect is to the older lives
rather than the core insured population age group.”  of COVID-19, not just with COVID-19: the deaths are not just an
In the UK context, this burden for retail insurance flows to the
reinsurance market, while the group life claims rest mainly with the
insurers. In the U.S., more of the risk sits with insurers, he adds.
“The other side of the deaths is that insurers will see a release
of reserves on annuity business – the older lives are more likely
to be pensioners with annuities from insurance companies. This
impacts the UK, the U.S., Canada and the Netherlands, mainly,”
Dutkiewicz tells Reactions.
Illnesses are less of a concern for health insurers as they tend
to be relatively short and are often covered by the state in many
countries. So there is a relatively small impact on medical
expense policies and some impact on short-duration disability
income policies, Dutkiewicz adds.
Other hard-to-predict factors include the future illness and
mortality impact on those who have had COVID-19, either
symptomatically or as “severe/critical but recovered.” This
will probably be worse, but it’s not known by how much,
Dutkiewicz believes.
Similarly, delays to medical examination and/or treatment mean
there will be an impact on all other causes of illness and mortality.
Medical expenses insurers have seen a big drop-off of other
claims, but they anticipate a rebound when people are able to
return to medical facilities.
“Finally, there is the impact on the mortality of the remaining
people; is it now improved because the already-impaired lives
are removed by COVID-19? It’s important to note that people die
acceleration of deaths that would have happened in the next few
years, as some contend,” Dutkiewicz notes.
On balance, the coronavirus is not likely to be a significant
event in mortality terms – and Dutkiewicz cites one reinsurer that
has likened the life insurance loss to a small nat cat on the P&C
side. “This, however, ignores the economic impact, which is much
larger on insurance and reinsurance companies coming off the
back of 15 months of steadily declining interest rates, he points
out. “Low interest rates are a bigger problem for life insurers than
a 1-in-20-year mortality event.”

May 2020
16 COVID-19 special report
‘You mean I have to come in?’
EPLI, workers’ comp claims expected to surge as unemployment skyrockets.
By Shawn Moynihan, Editor-in-Chief
G
rayce Leeper, a barista at
the Scooter’s Coffee shop in
Olathe, Kansas City, showed
up for work wearing a face mask in the
early days of the COVID-19 pandemic.
Leeper claims her manager told her
that wasn’t what the CDC was advising
people to do, and that masks were for
sick people. She says she was given two
options: work without a mask, or get
out. Rather than risk her health, she
chose the latter.
On 23 March, approximately 50
Perdue Farms employees in Perry, Ga.,
walked off the production line over
concerns about working conditions and
pay, claiming they didn’t feel safe in the
plant because of the coronavirus.
They claimed the poultry giant
wasn’t doing enough to keep its
employees safe and wasn’t sanitising
its workspaces: among the employees’
concerns was that workers on the
facility’s production line were allegedly
in contact with people who tested
positive for COVID-19.
In Staten Island, N.Y., Christopher
“Chris” Smalls, an employee at
Amazon’s JFK8 fulfilment centre,
was fired a few hours after leading
a walkout on 30 March, protesting
conditions at the facility. Smalls
claims that he was terminated for
bringing attention to what he claims
is an unsanitary work environment;
Amazon claims that Smalls was on
paid leave and under quarantine after
coming in contact with a fellow worker
who became infected.
Further protests at the fulfilment
centre have since been staged after
employees learned via emails from the
company that “more” coronavirus cases
have been reported among workers at
JFK8. The company has not provided
a tally of exactly how many workers at
the facility have tested positive.
The economic effects of the
coronavirus continue to be felt
worldwide. Millions have lost their
jobs due to mandated shutdowns or
because financially stressed businesses
simply can’t afford to keep them on.
While the P&C industry wonders
what fate awaits the endless stream of
business interruption claims that will
be filed in months to come, there’s also
the certain deluge of claims related
to Employment Practices Liability
Insurance (EPLI) and workers’
compensation that will have to be
dealt with.
Scott DeVries, Partner at Winston
& Strawn LLP and based in San
Francisco, says there will be no
shortage of EPLI-related claims “once
former employees who were laid off
during the shutdowns bring suit.”
According to Robert Tomilson, a
spike in such claims can be expected
when so many jobs are lost at once –
especially now, with no definite end
in sight as to when the economy will
return to anything resembling normal.
“Whenever you have large layoffs like
this you see an uptick in employment,
disability, and workers’ comp claims,”
says Tomilson, a Partner at Clark Hill
and based in Philadelphia, Pa. In the
U.S., he notes, more than 16 million
Americans filed for unemployment
benefits between 15 March and 4 April.
In the wake of the COVID-19
pandemic, EPLI claimants, he says,
will fall largely into two groups: those
alleging they were laid off because
of discrimination – not from the
cessation of business – and those
claiming that they were laid off as
retaliation by their employer.
“You’re going to see a lot of
retaliation claims where it is alleged
that the employer didn’t follow civil or
government guidelines on protecting
their workers,” he adds. “Did the
employer adhere to social distancing?
Were proper safeguards in place to
protect workers?”
Retaliation, Tomilson points out, “is
already a commonly alleged claim that
is covered by EPLI. Here, you will have
a circumstance and fear that everyone
May 2020
will understand, that they will have
experienced.”
DeVries underscored that while a
significant number of these claims can
be anticipated, “this is not to say that
all the claims will be well-grounded.
They will need to be assessed on a
claim-by-claim basis.”
Workers’ comp: a different
ballgame
The pandemic’s influence on workers’
compensation claims, however, is a bit
different.
“Typically, a workers’ comp claim
involves an occupational disease,
something you contracted in the
workplace,” says Tomilson. Ordinary
diseases of life in the wider public don’t
fall under that category, he explains.
Influenza, for example, however severe
is not a covered workers’ comp claim.
Workers’ comp claims, he says, need
to “draw a direct, causal connection
between the disease you have and your
job – something that would fall in that
causal nexus.” Employees in essential
businesses, such as hospital workers,
will have an easier time of proving that
causation if they’re reporting to work
every day.
DeVries agrees that healthcare
workers and first responders will be
among the ones making a successful
run at collecting workers’ comp
benefits. “Kentucky Employers
Mutual Life Insurance Company and
The Washington State Department
of Labor and Industries reportedly
have agreed to provide workers’
compensation coverage for health care
workers and first responders who are
quarantined, and I would expect other
insurers to follow,” he notes.
At least two other insurers have said
they will evaluate claims on a case-by-
case basis, says DeVries, who adds that
beyond this, “If people were actually
exposed at work, there would be proof
enough at least in some states holding
that exposure is equal to injury.”
 NOT JUST ANOTHER
RATING AGENCY

PROVIDING INSURANCE
FINANCIAL STRENGTH RATINGS
www.kbra.com x (646) 731-2368
18 COVID-19 special report
Event cancellation:
The COVID-19 factor
By Marc Jones, Associate Editor
I
n every country around the
world, certain events provide a
reassuring stability to the calendar.
In Western Europe, the Six Nations
rugby union competition enlivens the
bleakness of winter and stretches into
early spring. In the U.S., Major League
Baseball has its spring training camps.
And of course, there’s the horse racing
events and football league games.
That’s what happens in normal years,
at any rate. So far 2020 has been
anything but normal as event after
event gets cancelled thanks to the
social distancing measures and then
lockdowns that have been ordered
by local, city, state and countrywide
governments.
So far this year the casualties include
the Six Nations (postponed until
the autumn); the Grand National,
Wimbledon, the Champions League
(suspended); the Europa League
(suspended); Major League Baseball’s
London Series and a long list of
Formula One Grand Prixes. And
then there’s the big one. The 2020
Tokyo Summer Olympics has been
moved to 2021, making it only the
third time that an Olympics has not
taken place during the year in which
it was scheduled. Cultural events
have not been spared either, with
the Glastonbury Festival and the
Edinburgh Festival both being axed.
As the wider economic damage from
the cancellation or postponement
of these events is assessed, it’s worth
remembering the ripples that event
cancellation causes, as people also
cancel hotel reservations, flights,
catering, car hire, train tickets and
restaurant reservations, to list just a few.
Bills both large and small
Looking at the re/insurance bill, this
is also still in the process of being
assessed, as announcement after
announcement were being issued
about events as this article was being
written. However, Swiss Re has an
exposure of $250m to the Tokyo
Olympic Games.
Speaking on an analysts’ call, Group
Chief Financial Officer John Dacey
said the company also had a mid-
three-digit exposure for other events
scheduled over the rest of the calendar
year, split between its Corporate
Solutions (CorSo) and P&C Re units.
In terms of event management and
cancellations related to specific events,
Swiss Re believes itself to have an
overall market share of around 15% to
event covers that could be claimed due
to COVID-19.
Smaller companies are also feeling
the pinch. Yorkshire-based data
company Tracsis, which provides data
services and other help to a wide range
of major events such as the Grand
National and Glastonbury, said that
COVID-19 has had an immediate
impact on its events and traffic data
business units, which will have a major
effect on H2 performance.
In a statement the company
said that: “A number of large UK
events have now been cancelled
or postponed to the Autumn and
this trend is continuing. We are
also seeing significant disruption
to our Traffic Data collection and
Passenger Analytics activities that
were scheduled to take place over the
coming weeks, given road traffic and
rail passenger activity will be heavily
reduced and hence not representative.
May 2020
“As a result, we have taken a series
of immediate actions to mitigate the
impact as much as possible through
a reduction in casual labour costs,
the redeployment of staff, reducing
all discretionary spend, and taking
advantage of the Government’s Job
Retention scheme. We continue to
look at a range of medium to long
term structures for this Division
depending on the full impact of the
COVID-19 crisis.”
And then there are the other events –
the ones that might not be insured. How
many weddings in May and June of this
year will not go ahead as planned?
To cancel or not to cancel?
It’s worth pointing out that none of
these events were cancelled lightly, due
to the legal implications. According
to Alex Kelham, Partner at London-
based legal firm Lewis Silkin, which
deals with a wide range of creative and
sports-related legal matters, postponing
an event is a very difficult decision to
make as it leaves fans and suppliers in
the dark about if and when they can
expect the event to take place.
Kelham points out that the terms
of any agreement between organisers
and suppliers (including teams/
athletes contracted to compete in an
event) should set out when and on
what basis the event can be cancelled
or postponed, what the consequences
of this are, and where the costs will
lie. All parties should check their
contracts now to make sure they know
where they stand, she says. If the
contract is not clear on cancellation
and postponement (or even if it is, but
it’s not favourable), having an up-front
and open conversation, as soon as
possible, is probably the best way to
find a resolution.
Kelham also stresses the importance
of insurance: “Event organisers can
usually get cancellation insurance
which would cover them if the event
had to be cancelled or postponed
because of events outside their control.
Standard cancellation policies may
not, however, cover the situation
we now face. An extension of these
policies is normally available to cover
‘communicable diseases,’ but many
insurers are now excluding coronavirus
from this cover on new policies.
20 COVID-19 special report
Staying cyber-safe remotely
As the working world goes online to beat the coronavirus,
some hackers are seeking to profit. Here’s how to beat them.
By Marc Jones, Associate Editor
W
ith so much of the
world now in lockdown,
working from home has
become the new normal. All over the
world people are setting up laptops
and desktop computers and trying to
recreate a working schedule from their
own home.
For many, the risks to this new way of
working are limited to the cat walking
over the keyboard or spilling coffee
on one’s laptop. But there are worse,
more concealed risks. Cyber security
has almost instantly become an issue,
because sadly, there will always be
individuals who try and profit off the
vulnerability of others.
According to Steven Robinson,
National Cyber Practice Leader at
Risk Placement Services (RPS),
as despicable as it may sound,
cybercriminals are capitalising on
the fear and anxiety caused by the
coronavirus pandemic by deploying
social engineering scams targeting
employees who are working from
home, many for the first time.
“Cyber criminals, like any criminals,
are opportunists,” Robinson tells
Reactions. “They prey on a business’
lack of preparation and readiness.
Reaction to COVID-19 inherently
presents a work environment that
is spread out, larger, and, for many
businesses, largely untested from a
security standpoint.
“With more laptops in the field,
personal smartphones used for
company business, home computers
performing business tasks and large
deployments of new equipment to
employees, the opportunity for security
vulnerabilities are virtually endless,” he
adds. “Criminals understand this and
will leverage these vulnerabilities to
their advantage.”
Hackers change tactics
Stephanie Snyder, Senior Vice
President and Commercial Strategy
Leader for cyber solutions with Aon,
agrees that hackers are targeting
individuals at companies via social
engineering attacks.
“Distraction plus disruption equals
opportunity,” she points out. “We are
seeing hackers try to take advantage
of the distraction of the COVID-19
crisis and the associated need for
information as well as the disruption
of a workforce using new or less
familiar remote work technology.”
Robinson agrees that hackers are
changing tactics to take advantage
of the fact that with more ports of
entry come more doors for bad actors
to walk through. He says that RPS
has already heard of hackers testing
the vulnerabilities present in some
of the leading videoconferencing
software platforms as workers seek
to connect with one another in new
ways. RPS has also seen an increase in
social engineering scams that either
seek money for bogus non-profits
connected to supposed support for
pandemic relief efforts, or, for email
and network credentials harvested
from fraudsters claiming to be
connected with government agencies
such as the World Health Organization
or the CDC.
Be prepared
So, what basic security steps should
people who are working from
home take to help be more secure?
According to Snyder, at a minimum,
employees should consider the
following: ensure home wifi has
a unique password; do not store
sensitive corporate data on a local
hard drive of a corporate laptop, and
only access the Internet via a VPN; use
multifactor authentication for VPN
access; and do not open suspicious
attachments or hyperlinks, or provide
credentials to an untrusted sender.
May 2020
Robinson echoes many of the above
but also has a few other tips:
• Verify the sender’s email address,
particularly when someone is asking
for sensitive information. Look for
typos in the email name or address
or within the email itself. Hover over
the URL to ensure it is from a trusted
email address.
• Ensure all firewalls and SPAM
filters are turned on and up to date
in the home office environment.
Most internet service providers are
providing some level of robust home
network defences that are included
with your monthly access. Of course,
these tools are useless if they are
deactivated.
• If an employee receives a suspicious
email, use an alternative means to
verify that it is legitimate, such as
calling the sender. But warn them
against replying to or forwarding the
email, because it could download a
virus onto their computers or open
the scam to others.
• Avoid taking lazy shortcuts to
transmit information from your
protected corporate network to a
local printer. Emailing sensitive
documents to your personal email
address could easily lead to a security
breach because information security
is typically not as robust in one’s
home as it is at the office.
• When you walk away from your
computer, be sure to lock it with a
secure password. This work-from-
home environment is new for many
employees, and new to their family
members as well. Take all steps
necessary to ensure that others in
your house cannot access (even if
unintentional) sensitive information.
• For companies providing hardware
to employees working from home, we
strongly suggest they do not deploy
new IT assets with default factory
settings – that’s always where the
cyber criminals start – particularly if
you’re drop-shipping laptops directly
to employees’ homes. Make sure the
employees receiving these devices
work with IT security staff to set
them up securely.
 Reactions infographic 21

Pandemic Perspective
According to the Actuarial Association of Europe, history shows that a pandemic normally comes in
waves, with a couple of months in between. The second wave is typically worse than the first.
Subsequent waves may be lower because of increased resistance against the virus.
Here’s a look at pandemics in the 20th and 21st centuries and the number of deaths for each, to date:

Spanish Flu 40-50m

(1918-1919)

00
1900

1925

Asian Flu 1.1m

1950 (1957-1958)
Hong Kong Flu 1m
(1968-1970)
1975
HIV/AIDS 25-35m
(1981-present)
2000
SARS 770
(2002-2003) Swine Flu 200,000
MERS 850 (2009-2010)
Ebola 11,300
(2012-present) (2014-2016)
COVID-19 234,020*
(2019-present)

*Johns Hopkins University estimate as of 1 May

The “attack rate” – the proportion of persons exposed to a disease who become ill – for the Spanish Flu was
approximately 30%. The attack rate for COVID-19 is estimated between 50% and 80%.

The International Monetary Fund (IMF) believes that global growth will turn sharply negative in 2020, and
anticipates the worst economic fallout since the Great Depression. Three months ago, the IMF expected positive
per capita income growth in over 160 of its member countries in 2020. Today, it projects that more than 170
countries will experience negative per capita income growth this year.

COVID-19 related claims are likely to be manageable from the standpoint of the sector’s financial strength.
Event cancellation claims could produce insured losses of $4bn to $6bn.
Credit risk, specifically whole turnover (or structured) trade credit, surety and mortgage insurance also bear watching.

In a recent report, Wilis Re says insurers must “revise their plans, adjusting for a range of economic scenarios that will
impact customer bases, investment returns and balance sheets. Many insurers may be holding more risk relative to
their balance sheets than they had anticipated, which suggests three options: ride it out, de-risk, or hedge.”
Sources: NAIC, Willis Re, AIR, Actuarial Association of Europe, Visual Capitalist

May 2020
22 COVID-19 special report
Finding a state-backed
pandemic solution
COVID-19 crisis shows governments are needed to pick up the top layer of losses in a
pandemic market expected to surge.
By Mark Richardson, London Editor
W
ith the P&C industry
already citing virus
exclusions in a great
number of business interruption
claims in the wake of COVID-19,
insurers are receiving their fair share
of flak.
As UK MPs point the finger at
insurers to pay out and lawmakers
in certain U.S. states draft legislation
to attempt to force them to do so,
several leading industry figures
have responded by highlighting
how governments could help insure
businesses against the economic
impact of a pandemic going forward
– specifically, through a state-backed
pooled reinsurance fund to cover
business interruption losses.
AXA CEO Thomas Buberl is the
latest to suggest this. “AXA is ready
to take the initiative to work with
the French government and other
European states to create a pandemic
insurance scheme to cover these health
catastrophes, inspired by the one that
already exists for natural disasters,”
he told Le Journal du Dimanche,
suggesting it could be owned 50/50
by a pool of private insurers and the
government.
Premiums would be collected each
year and set aside as a reserve. Then
in the event of losses arising from a
pandemic, insurers would pay up to
two to three times the amount of the
premiums, with the state taking over
beyond that.
The ABI, too, has promoted such
a state-backed initiative, claiming
that when debating how the global
economy can better insure against
future pandemic crises, “tackling this
will be an issue for governments as
much as insurers.”
Similar state-backed reinsurance
schemes currently exist for covering
terrorism risk – Pool Re in the UK and
TRIA in the U.S.
“It certainly is feasible to provide
some pandemic cover on commercial
terms as long as appropriate limits are
put in place,” Steve Allen, marketing
director of insurance governance
consultancy Mactavish, tells Reactions.
“In all likelihood, such cover could
cater for most scenarios caused by
infectious diseases and national or
regional epidemics and provide at
least some protection against a major
pandemic – and would therefore
provide an important service for
companies and organisations at a time
such as this.”
With the APCIA predicting monthly
losses to small businesses of $431bn
in the U.S. alone due to COVID-19, it’s
worth emphasising that limits would be
necessary to avoid carriers going bust.
And Allen says due to issues around
aggregation and concentration of
risk, full pandemic cover designed to
May 2020
indemnify all losses for another global
event would almost certainly require
some form of government backing.
However, insurers could still do
more, and Allen says with the level of
expertise in the industry, a commercial
pandemic market could function.
Government support would then act
as an additional layer for situations in
which the primary insurers’ limits are
exceeded.
“Whether or not the government
does play a role, we certainly think
that the insurance industry should
take a lead in defining the solution as
it has the commercial and technical
skills required to quantify the risks and
liabilities involved,” he adds.
Past evidence, though, suggests
clients have been reluctant to take up
what pandemic covers are available;
Munich Re-backed parametric
product Pathogen RX was created by
Marsh in 2018 – ironically, targeted
at the industries now most affected by
the coronavirus, including hospitality,
travel, aviation and sports/events. No
one bought it.
While analysts have told Reactions
demand is expected to surge for
pandemic cover following this crisis,
Lloyd’s CEO John Neal told media on
a results briefing that this crisis will
have taught the industry to put more
effort into explaining the benefits of
new products to clients.
“The industry is super alert to
wanting to provide covers to protect
these types of risks,” said Neal. “We
have to make sure that in a world
where costs seem to be at the forefront
of everyone’s minds, that people do
understand the benefits of some of the
covers and maybe why they should
buy them.”
24 COVID-19 special report
E&S players responding
in a COVID-19 world
Surplus lines executives discuss how the coronavirus is shaping their business.
By Shawn Moynihan, Editor-in-Chief
F
reedom of rate and form has
long been the advantage of the
E&S industry, empowering it to
craft new coverage solutions for some
of the most unorthodox risks. Now,
surplus lines players find themselves
attempting to find solutions for clients
beset by financial challenges wrought
by the COVID-19 pandemic.
E&S executives agree that as their
teams have adjusted well to working
remotely, staying in touch with
insureds and working on their behalf
is key.
“Our clients, our trading partners,
brokers, agents – we’re all in
uncharted waters. We’re focussed on
reaching out to them to keep the lines
of communication open,” says Bryan
Sanders, President of Markel Specialty.
“It’s all about staying connected
through this. If we do that, we’ll be
in a much better position than others
who might not, as time goes on.
“Working remotely and how we’re
going about it industrywide is a ‘new
normal’ for us – and I’m proud of how
the industry has responded,” he adds.
“Culture really stands out at a time
like this. It’s really pleasing to see how
people have rallied.”
John Head, President, National
Brokerage at Risk Placement Services
(RPS), says, “We’re working with our
carrier partners to figure out ways to
minimise the effect on all our clients.
This is something they could not have
anticipated or prepared for.”
The E&S market is well-positioned
to be innovative and respond to our
customer needs,” says Davis Moore, CEO
of Worldwide Facilities in Los Angeles,
Calif. “We want to be part of the solution
in this unprecedented time.”
“Our production results have
remained strong as our teams work
even harder with an unmatched
commitment to our retail brokers
and market partners,” says Brenda
(Ballard) Austenfeld, President,
National Property and Managing
Director at RT Specialty. “Of course,
there is no substitute for face-to-
face interaction, which has been
an important part of building
relationships through the years. We
all look forward to the future when we
can return to personal time together.”
“The biggest challenge will be to
prove that you’re a long-term partner
and advocate for the overall industry,”
says Ethos Specialty President & CEO
Rory Cline. “The E&S market is known
for timely turnaround and innovation.
We love this business because of all the
trading-partner relationships.”
In a time when E&S professionals
can’t just pick up and go visit
those clients, maintaining those
relationships comes down to working
the phones and leveraging digital
technology in video chats.
“You just have to get back to your
phone skills,” says Cline. “The broker
community is doing a great job of being
proactive about this. People are getting
innovative with staying in touch.”
Moore agrees: “You need to adapt to
the change, and our people are used
to doing that,” he says. “Our team
members are in regular contact with
our customers and carrier partners.”
Austenfeld at RT Specialty says its
leadership has remained in constant
contact with its people, giving them
critical support. “Thanks to our
commitment to technology, conference
calls, webinars and Zoom meetings have
been an important way for us to all stay
in contact with our teams,” she says.
“Our brokers remain in constant
contact with all trading partners,” she
adds. “Many have commented they feel
even more focussed with more time
May 2020
to spend on core business functions
with less travel and other outside
commitments.”
“Time is the only commodity we really
all have, and I believe we’ve become
more effective at doing our jobs than
ever before,” says Head, adding that he
and his people are on calls throughout
the day, discussing deals, collaborating
with carrier partners, and staying
focussed. “I’m so encouraged about
where the E&S industry is going,
because you have the opportunity
to make more connections at every
level. Our teams are collaborating
and communicating more than ever.
While we have been pushed apart by
COVID-19 we are finding ways to stay
connected,” he adds.
Client interactions
Cline indicated that business hasn’t
slowed during the pandemic.
“Submissions are still coming in, we’re
looking at the same item count,” he says.
Sanders agrees that submissions
have continued to flow into the E&S
space. “The E&S model is time-tested,
and coming into this unprecedented
set of circumstances the segment was
healthy and in a very strong position.
We will get through this together.”
“While COVID-19-related impacts
are obviously being felt throughout
the economy, WSIA members are
managing through the disruption,
and working with policyholders, and
within state regulatory requirements,
as they normally would in the wake
of any catastrophic event,” Brady
Kelley, Executive Director of the
Wholesale & Specialty Insurance
Association (WSIA), tells Reactions.
“As an association, we have outlined
policy positions that serve as an
advocacy roadmap and help ensure
that our members are able to continue

to respond consistently and provide
support to insureds.”
“There’s a lot of uncertainty around
what types of claims will emerge
and how that affects the E&S space,”
says Moore.
Clients, he says, have naturally been
inquiring about what relief they can
expect. Property policies may not
offer much in terms of COVID-19
coverage, with some exceptions. Some
casualty products, he adds, had a
communicable disease exclusion and
some did not, so answers will vary by
carrier and insured contracts.
“It’s surprising to see the number of
people on the admitted side who do
not have that exclusion,” says Bryan
Schofield, Senior Vice President
of Commercial Lines at Orchid
Insurance, which specialises in
insuring coastal property.
Schofield believes that going forward,
reinsurers will try and carve out
pandemics from catastrophe covers.
“Whether they get it,” he adds, “is to be
determined.”
Several E&S executives say clients
who renewed just before the pandemic
hit are looking to reduce their exposure
base, as their businesses – contractors
and restaurants, for example – have
been closed and remain idle.
When it comes to the bigger
question of small business relief from
COVID-19 special report
COVID-19, Cline at Ethos believes a
federal backstop to ensure pandemic
protections for all businesses should
be a key consideration for the industry.
“We need to try and cover it in
some shape or form, because I don’t
think this is the last pandemic we’ll
be exposed to in our lives,” he says.
“We have to figure out a way to give
coverage for [pandemic exposure] that
makes sense.”
The M&A picture
Considering the degree of economic
volatility at the moment, one wonders
what the effect will be on merger &
acquisition activity in surplus lines.
Cline believes it’s pencils-down
time for any larger deals that were
in motion, and others who spoke to
Reactions for this story agreed.
Schofield at Orchid Insurance says
the current environment “adds an
extra layer of complexity” to the M&A
equation.
Attention must be paid, he explains,
to the impact the pandemic will have
on the future of MGAs, retailers and
wholesalers. How does COVID-19
affect the business of a potential
acquisition? The short and long-term
effects on such lines of business as
aviation and hospitality, for example,
must be factored in when calculating/
establishing valuations.
May 2020
25
“I think you’ll see some investment
groups arise that will invest in these
MGAs as COVID-19 impacts their
business,” he adds. Those partnerships
could be forged between financial
backers and MGUs or MGAs
themselves, the latter of which will
invest in a stake.
Moore at Worldwide Facilities adds
that “with the amount of uncertainty
in front of us, including what the
recovery will look like, it’s difficult
to develop constructive valuation
viewpoints. Investment bankers say
deals that were in process are getting
done or hit the pause button.”
Keeping on
Meanwhile, surplus lines players will
continue to do what they feel they do
best. “The E&S industry are problem-
solvers,” says Sanders. “We pride
ourselves on that. First and foremost
we default to an alternative, rather
than a declaration.”
“During times of crisis, such as we
are in now, the specific expertise
that is fulfilled by the wholesale
distribution channel becomes all the
more apparent,” says Austenfeld. “The
benefit and importance of this channel
continues to grow as the market
continues to become more complex.”
She says the feedback RT Specialty
has received from clients “has been
incredibly positive, as all of our clients
are dealing with the same challenges
working remotely as we are. The
bottom line is that we have not missed
a beat, and clients recognise it.”
Head firmly believes that once the
pandemic has passed, business in the
E&S sector will be even stronger than
it was as 2020 began. A variety of
clients, he says, are now re-evaluating
how they do business. Restaurants, for
example, will adapt to the times. “This
country comes back stronger every
time,” he says. “We’ll see more start-
ups, more opportunities. But we have a
long way to go before we get there.
“Empathy is the most important
thing right now, to be able put yourself
in other people’s shoes,” adds Head.
“We need to be determined that we’ll
get through this – and we will get
through this. Just because things are
harder to do right now doesn’t mean it
can’t get done.”
26 Orchid Insurance
Orchid Insurance thrives
in tough environment
The managing general underwriter business model is adaptable and agile enough to
continue growing while others struggle, according to Brad Emmons, President & CEO of
Orchid Underwriters Agency.
C
OVID-19, an uncertain
economic outlook,
unprecedented weather events:
these are turbulent times for the U.S.
insurance industry. But some business
models seem better placed than others
to stay on top of such a dynamic risk
environment.
It could explain why managing
general underwriters (MGUs) are
playing an increasingly prominent role
in the risk transfer value chain.
“Specialisation is important today.
Businesses like ours tend to be very
agile compared with big carriers.
We deploy capacity and products
more efficiently and at less cost,” says
Brad Emmons, President & CEO of
Orchid Underwriters Agency (“Orchid
Insurance”).
“For MGUs to be successful in today’s
market, they must possess high-
quality underwriting and distribution
capabilities, technology infrastructure,
and an efficient expense model that
delivers profitable results to its carrier
partners,” says Emmons. “It explains
why the market increasingly taps into
them; whether it is in the programme
segment or in deploying property CAT
capacity like Orchid.”
Founded in 1998, Orchid Insurance
offers specialty insurance products
for homeowners and businesses
across the United States, the Bahamas
and the Caribbean. A variety of
products provide customers with
comprehensive solutions for both
personal and commercial property
insurance including Wind and Wind-
Only, General Liability, Primary and
Excess Flood, Earthquake, Builder’s
Risk and others.
Orchid’s niche expertise in the Excess
& Surplus (E&S) lines market for
coastal-exposed risks, and knowledge
of coastal CAT-exposed market
areas in the East and Gulf Coast
states makes the MGU an important
provider for agents.
“It’s a growing segment in terms
of size and limits of coverage,” says
May 2020
Emmons. “The E&S regulatory
framework allows carriers to respond
to changing risk environments and
that is opportunistic in turbulent
times. The E&S segment is outpacing
the market in terms of growth and is
thriving.
“Whether it is hurricanes, floods,
or human catastrophes, such as
COVID-19, the E&S market reacts
faster to emerging needs, compared
with the somewhat slower response of
the admitted market.”
Reduced admitted insurer appetite
for catastrophe-exposed property
risks, limits and capacity reduction in
several liability segments drove E&S
premium growth in 2019, according to
a note1 from Fitch Ratings.
Direct premiums expanded by 15%
in 1H19 and 11% in 2018, according
to Fitch, representing the eighth
consecutive year of premium growth
and the largest increase since 2012.
All major E&S lines of business
contributed to the period-to-period

growth, which nearly doubled the
overall property/casualty industry for
the year, Fitch said in its note.
A market in transition
Emmons predicts improved
underwriting conditions in the E&S
market, though his forecast varies in
different segments and geographies.
“There’s overall firming in the
market. It started gaining momentum
in 2019 and it will carry through into
2021. Major losses emerging now
from COVID-19-related business
interruption coverage uncertainty,
event cancellation coverage and
travel insurance will have an impact.
The property market will increase in
the high single-digit range to early
teens; distressed markets will be
much higher.”
Emmons believes that profitability
issues in casualty will drive high
single-digits to teen increases over the
next 12-24 months.
COVID-19 clouds the market
outlook, Emmons suggests,
particularly because of the chilling
effect that the pandemic is having on
economic activity everywhere.
“That will have an impact,” says
Emmons. “Insured values will decrease
and that could lead to carriers having
to balance the need to ‘get rate’ with
maintaining continuity. Fortunately,
Orchid has a diversified business and
some segments will be impacted more
than others.”
On the claims side, business
interruption exposure as a result of
the pandemic is potentially a big issue
for the wider insurance market, if
not in E&S. Generally, carriers never
inteded to cover the peril. But there
can be a grey area in policy language
where carriers have not done their due
diligence, says Emmons.
ons.
“The industry in ourr
segment has adequatee
coverage exclusions in n
place,” he says. “But
there is always the
possibility of individual
ual
states looking to makeke
their consumers whole le
through insurance. Iff that
happens, the insurance ce
nce
industry will experience
catharsis.
“Retro-active application will be hard
to achieve, but there is exposure – and,
in a worst-case scenario, it will be
unsustainable for the market.”
A growing Orchid
Notwithstanding the different
challenges facing carriers, Emmons is
bullish about the future and Orchid’s
growth prospects.
“We are going to lean into this
market,” he says. “Organically, we are
looking at expanding our core property
CAT business. We will manufacture
additional capacity through our own
light balance sheet vehicles.
“We want to provide some additional
value to our distributors on products
that are in demand. We established a
captive cell in Bermuda last year and
we will increase the volume of business
going into it over the next 24 months.”
Emmons reveals that Orchid is
also looking to enter the admitted
market through a light balance sheet
vehicle that will launch in Florida in
the third quarter. The move comes
at a challenging time for incumbent
admitted carriers in the region.
Demotech recently said in a note2
that “the numerous financial- and
market-based criteria that affect
Florida residential property insurance
have never been more difficult for
carriers to navigate since we first rated
Florida focussed carriers in 1996.”
It identified jurisdictional and
weather-related challenges as two
clear issues facing the Sunshine State:
“A substantial increase in reinsurance
costs during 2019, another likely
increase in the cost of reinsurance
in 2020, plus the cost of the Rapid
Cash Build-up Program of the
Florida Hurricane Catastrophe Fund
are others.”
Acquisitions are also
al a path to
growth for Orchid Insurance,
which is backed b by TowerBrook
Capital Partners LP, an
investment
international inv
management fir firm with more
than $12.4bn aassets under
managemen
management.
“As well as
organic growth
or
opportunities,
we are
looking
May 2020
Orchid Insurance 27
into potential acquisition targets, says
Emmons. “We are interested in small-
to medium-sized firms that are experts
in their field and whose results would
encourage us to back them. We like
firms that recognise the importance of
data and distribution. They should be
ready to work together with strategic
partners like Orchid that further invest
in their companies.”
Aligned for growth
Emmons says TowerBrook Capital and
Orchid are aligned around growing
and transforming the business.
“They have insurance in their
DNA. It’s a good partnership and
they are happy with what we have
accomplished thus far,” he says.
“Overall, we are also looking into
further diversifying our portfolio
through non-property CAT product
adjacencies that strengthen the
value proposition of the existing
retail distribution that we have. That
includes geographic diversification.”
Emmons says that Orchid is
exploring the potential for product
diversification into flood, earthquake,
and builder’s risk, for example.
“We will always stay true to our
identity; however, retaining a view of
risk that continues to attract carriers
to support us, but also to provide more
fuel to run,” says Emmons. “We’re not
looking to be an MGU generalist, we
want to stay true to our underwriting
specialities.”
In an increasingly vibrant MGU
market that keeps attracting new
start-ups, it is important to have core
values, Emmons believes.
“We have got a long and
distinguished track record of
delivering results when the wind blows
and through attrition. It’s helped us
forge firm partnerships with existing
carriers and, in terms of distribution,
agencies find us very easy to do
business with,” he says.
“We aim to provide the products
clients need with a path of least
resistance approach – and that appeals
to both carriers and retailers alike.”
1. https://www.fitchratings.com/research/
insurance/us-excess-surplus-lines-market-
review-strong-revenue-growth-despite-weak-
results 09-26-2019
2. Demotech Rated Florida Carriers Evolve to
Maintain FSRs of A or Better 04-02-2020
28 COVID-19 special report
Aviation insurers respond
as clients face crisis
As airlines fight to survive amid COVID-19, underwriters must carefully consider how they
raise rates — and collect premiums.
By Mark Richardson, London Editor
A
mong those sectors hardest hit
by the coronavirus is aviation.
As the virus spread from
country to country through March,
governments began imposing stringent
restrictions on foreign visitors, and the
number of flights scheduled has fallen
dramatically. The International Air
Transport Association (IATA) estimates
the global financial impact of COVID-19
on the air transport industry to be
around $252bn, with annual revenues
expected to be down 44% on 2019.
“The airline industry faces its gravest
crisis,” the IATA’s Director General and
CEO, Alexandre de Juniac, said in a
statement.
The pandemic is expected to put
a dent in the premium income of
aviation underwriters this year as
grounded planes dramatically reduce
exposure. The virus pushed struggling
UK airline FlyBe into administration
at the beginning of March, and more
such casualties would likewise impact
overall premium income.
“There’s no doubt there will be an
impact on the insurer part of the
proposition,” Andrew Wallin, Chief
Operating Officer of broking group
BGCI, tells Reactions. “Volumes
have fallen off a cliff, and clients may
be looking at state intervention to
support them.”
The situation leaves aviation brokers
and underwriters in a difficult
May 2020
PHOTO: NATIONAL POLICE AIR SERVICE
position: this line of business had
already been viewed as underpriced
before one of the costliest years on
record in 2019 and several more
significant losses in Q1 2020.
Consequently, substantial rate hikes
have been introduced over the last 12
months to make the line profitable.
For clients struggling to remain
solvent it could hardly have come at
a worse time, but Gallagher states in
its “Plane Talking” report that this is
highly unlikely to stop the momentum
of upward pricing adjustment this
year. In the aerospace manufacturers
and infrastructure sector, the broker
expects to see minimum primary rate
increases of 20-25% this year.

“While underwriters will certainly
be sympathetic to the financial strain
of COVID-19 on their aviation clients,
especially airlines, they too will be
heavily impacted by the decrease
in exposures and the associated
reduction in premiums that this will
produce for both the 2019 and 2020
policies,” Gallagher says in the report.
“Underwriters see this as a separate
challenge to their long-term goal of
achieving rate adequacy; therefore,
they are unlikely to curtail the current
level of rate increases they require on
2020 renewals.”
For insurers, the hit on premium
will largely depend on how long the
outbreak lasts and the individual
government response – the length
of time travel restrictions are kept in
place, and how much financial support
they can provide the aviation industry.
The impact for underwriters could
be longer-term, however, as even with
the lifting of restrictions economies
will take longer to recover, and there
is expected to be some customer
hesitancy around immediately
returning to air travel.
Whatever the overall loss in
premium revenue proves to be, it
will be a blow to those looking at
using these newly adequately priced
premiums to make up for past years of
underwriting losses.
The Gallagher report highlights that
airline failures will lead to unpaid
“ It’s important to protect
COVID-19 special report
premiums, which will be felt by
insurers and brokers.
To compound matters for insurers,
data from aviation MGA Hive Aero
shows that grounded aircraft are
largely being held in a select number
of airports – Singapore with the
most, at 205 units worth $22bn in
insured value. Bruce Carman, Chief
Underwriting Officer for Hive Aero,
said this created “eye-watering
aggregate exposures” for insurers.
These factors could suggest an
acceleration in rate movement this
year to account for the effect the virus
has had on aviation underwriters,
but Wallin says there are a number of
factors in play.
“It depends on what happens to the
capital flow in coming months,” he
notes. “We’ve seen an unprecedented
level of volatility in the capital market
and it depends where that capital
seeks to put itself in those months.”
While the Gallagher report states
there has been no shrinkage of
primary aviation capacity so far this
year, ratings agencies have predicted a
tightening in capacity from reinsurers
and third-party investors more
generally across the market.
But given the strain aviation clients
in particular are under currently,
Wallin stresses that underwriters will
have to be considerate in what rate
rises they do introduce.
“There is a real need for rate
the long-term viability
of the marketplace and
smooth out that pricing
curve, rather than taking
advantage of this situation.
The market has to do the
right thing, and the right
thing is neither easy nor
quick or unilateral.”
Andrew Wallin, BGCI
May 2020
29
correction, so it might not be within
insurers’ gift to limit those rate
increases,” Wallin said. “They will have
to be innovative and they will need
to make sure that they are modelling
prices and risks accordingly.
“If insurers fail to support businesses
at this critical point and businesses
become insolvent, those businesses pay
no premium. So it really is a balancing
act for the market.”
During these difficult conditions for
clients, Wallin said one of the biggest
challenges for all insurers and brokers
will be maintaining their reputations.
Doing so, he said, could have longer-
term benefits and potentially help to
retain clients.
“It’s important to protect the long-
term viability of the marketplace
and smooth out that pricing curve,
rather than taking advantage of this
situation,” he said. “The market has to
do the right thing, and the right thing
is neither easy nor quick or unilateral.”
And the Gallagher report suggests
underwriters are being considerate of
aviation clients’ current plight.
“Gallagher’s preliminary discussions
with the major aviation insurers have
been positive and suggest that they are
minded to respond sympathetically
and appropriately to assist their
clients during this difficult time,” the
report stated.
While this may not manifest itself
through limits on rate rises, owing to
past years of losses, there are other
ways insurers can show leniency to
clients. For hull and liability policies,
Gallagher said insurers are considering
a range of measures to help their
clients from deferral of installments to
returned premiums.
However, the broker stressed that
responses vary from insurer to insurer
and often depend on the risk and its
previous loss experience.
Talks will be ongoing between
aviation brokers and insurers to find
how much help can be given to clients.
As Wallin says, it is in everyone’s
interest to protect aviation firms from
insolvency.
30 COVID-19 special report
BI dangers lurk
for carriers
Increased scrutiny of wordings threatens unintended
claims payouts.
By Mark Richardson, London Editor
T
he mostly clear skies the
insurance industry had been
forecasting on the business
interruption front this year have
turned to threatening weather indeed.
Inside of just a month, expectation
has grown that the vast majority of BI
losses caused by COVID-19 – which
policy terms would seem to exclude,
in most cases – be covered due to
government intervention.
In the worst case scenario, it’s not
an exaggeration to say it could be a
devastating event for the re/insurance
industry, were that to happen. In the
U.S. alone, the American Property
and Casualty Insurance Association
(APCIA) has estimated monthly losses
to small businesses could be up to
$431bn.
It’s no wonder then that alarm
is mounting over legislation being
drafted in at least seven U.S. states
at the time of writing retrospectively
changing business interruption policy
wordings to include coverage for the
pandemic.
“Any action to fundamentally alter
business interruption provisions
specifically, or property insurance
generally, to retroactively mandate
insurance coverage for viruses by
voiding those exclusions, would
immediately subject insurers to claim
payment liability that threatens
solvency and the ability to make
good on the actual promises made in
existing insurance policies,” APCIA
CEO David Sampson said in a
statement.
May 2020
Chubb CEO Evan Greenberg, the only
insurance industry representative on
President Donald Trump’s 200-strong
council for restarting the U.S. economy,
has likewise spoken out about the
disastrous effect forcing insurers to pay
out on policies would have.
Speaking to Bloomberg, he said it
would be “unconstitutional” to rewrite
contracts, and that doing so would
“bankrupt the industry.”
The situation has become further
strained by President Trump
encouraging insurers to pay out
on claims where there isn’t a clear
pandemic exclusion, and a flurry of
lawsuits being brought by clients who
believe they have a strong case for a
payout.
The uncertainty over the eventual
cost of BI claims isn’t limited to the
U.S., however.
In the UK, a group of Hiscox SME
clients have stated the language in
their policies specifically includes
payment for this current scenario
where the government has forced
businesses to close due to a pandemic.
The group has threatened legal action
against the insurer.
Hiscox saw its share price plummet
32% within a day-and-a-half ’s
trading over shareholder fears of the
significant losses indemnification

could bring. The damage forced
Hiscox into releasing a statement
clarifying its exposures and reaffirming
that its wordings would not cover
COVID-19-related BI claims. Its
worst-case scenario would be
approximately $175m in pandemic-
related losses stemming primarily
from event cancellation, entertainment
and travel.
Nevertheless, with 10,000 affected
SME clients, Peel Hunt analyst
Andreas Van Embden put Hiscox’s
potential exposure to BI claims at
between $90m and $150m, assuming
a three-month lockdown period.
The Association of British Insurers
has stated that the majority of policies
will not cover COVID-19-related losses
– but that isn’t likely to stop more
lawsuits cropping up in the UK and
around the world. Further lawsuits
are expected to be brought by insurers
if U.S. legislation passes forcing the
retrospective pandemic coverage,
meaning the full loss picture is likely
to be only known once a number of
legal challenges are resolved.
In a report from KBW, analyst
Meyer Shields found that even if most
insurers believe they have relatively
little exposure to coronavirus-
related business interruption claims,
experienced plaintiffs’ attorneys have a
very different perspective.
“While Shields cannot predict how
related litigation will play out (at this
point, he still thinks that this is at
worst an earnings event rather than
a capital event), he urges investors to
consider the risk that some courts will
decide that some commercial policies
include some BI coverage stemming
from the coronavirus, despite such
coverage being almost universally
unintended and frequently expressly
excluded,” an investor’s note stated.
The attorneys gave a number of
reasons why a court may find in favour
of the claimant. These included case
law supporting the presence of the virus
constituting covered property damage;
the diagnosis of an employee with
COVID-19 acting as proof of the virus’
presence in a workspace; and other
policy extensions providing coverage
when civil orders prevent access.
Other attorneys said that
contamination exclusions are less
COVID-19 special report
widespread than what is suggested,
and of those with exclusions, they may
not be as effective as expected.
Insurers and reinsurers have
continued to downplay the
exposure, but as the complexities
and ambiguities of these policy
wordings are revealed, the less certain
that seems.
In its commentary titled “Social
Inflation May Affect COVID-19
Business Interruption Losses,” AM
Best stated that insurers were likely
to continue to suffer potential BI
and related contingent business
interruption (CBI) losses until
COVID-19 abates.
“Under normal circumstances, BI
or CBI would apply until any limits
or sublimits were reached and during
the entire ‘period of restoration’,”
the ratings agency stated. “With the
impact of COVID-19 likely to continue
developing over the coming months
or longer, it is impossible to be certain
how long the ‘period of restoration’
will be for these businesses.”
AM Best warned of a noticeable
uptick in defence and containment
costs, and that the trend of social
inflation may also work against
insurers in court: “With the impacts
of social inflation becoming more
severe in recent years for insurers due
to shifting jury demographics, legal
judgments may be more unfavourable
to the insurers than in prior years.”
Tom Johansmeyer, Assistant Vice
President of Verisk-owned Property
Claims Services (PCS), has termed
the phenomena “silent pandemic” –
policies that do not intend to pay out
on pandemic-related losses, but have
hidden exposures within them.
Speaking in a webinar on 3 April,
he said that soft-market conditions of
past years may have allowed exposures
to be written back into wordings.
Johansmeyer picked out two kinds
of wordings where disputes may arise
with regards to silent pandemic: the
policy may lack specific language
to address COVID-19 or infectious
disease or virus, neither including nor
excluding it and leading to ambiguity;
or through ambiguous language on the
subject of pandemic.
“There is also the notion that policy
terms may allow a pandemic to be
May 2020
31
covered because such risks weren’t
originally contemplated,” he added.
Johansmeyer said industry loss
warranties were a way of hedging the
risk, but reinsurers are themselves
limited on how much risk they can
take on having suffered their own
pandemic-related shock on the asset
side of the balance sheet.
“The issue here is one of capacity,”
Johansmeyer said. “There isn’t enough
capacity in the market to handle a large
influx of capital. You have competition
out there for capital already in terms of
Japanese and U.S. wind ILWs, and you
also have issues on the asset side that
are affecting risk appetite.”
Concern has increased among
reinsurers of the primary market’s
exposure to BI losses and available
capacity has shrunk, making achieving
an ILW on desirable terms that much
more difficult.
At 1 April renewals reinsurers were
inserting specific COVID-19 exclusions
on contract wordings, a practice
expected to continue at mid-year
renewals.
The combination of greater demand
and reduced capacity is also likely to
accelerate rate hikes.
In its most recent impact report
on the COVID-19 crisis, Willis Re
stated that reserving challenges for
re/insurers will be “formidable” –
across practical, operational, legal and
technical measures.
“The threat from BI is exacerbated
by growing vocalism from various U.S.
state legislators seeking to revise actual
coverage granted into something
that they wish had been granted
retroactively,” the report stated. “This
action represents an existential threat
to the entire industry, never mind the
consequences of unilaterally changing
contract law.”
Ultimately, Willis Re expects a
compromise will be reached in the U.S.
on BI claims. Given the contentious
nature of the situation, however, it
could be some time before the full
value of industry-wide business
interruption claims is known.
One thing, however, seems certain:
the only ones that will come out
winners amongst all the wrangling and
compromising over BI coverage will be
the attorneys.
32 Interview
MGA conduit that’s
made to measure
Industry veteran Bill Jewett explains why his new company
Obsidian is indeed cutting-edge.
By Garry Booth, Contributing Editor
T
he COVID-19 pandemic
didn’t keep industry veteran
Bill Jewett from presenting
a new-generation carrier to the U.S.
commercial insurance market in
March. Backed by $100m of capital
from San Francisco PE firm Genstar
Capital, Obsidian Insurance Company
is a fronting carrier that will source,
underwrite, and manage a diverse
portfolio of P&C and specialty
insurance programmes, and reinsure
the majority of the business out to a
panel of reinsurers.
Obsidian, which received a financial
strength rating of A- from AM Best,
joins a number of other insurance
platforms in the Genstar portfolio,
including Palomar, a provider of
catastrophe insurance for residential
and commercial property, which
completed an IPO in April 2019.
Obsidian is an interesting start-up
because focussing on issuing policies
underwritten by MGAs, MGUs, and
programme managers is a relatively rare
business model right now. Jewett tells
Reactions it’s a response to the growing
market share and influence of MGAs.
He says there’s been an evolution
that favours wholesalers, risk
aggregators, and MGAs as they’re
the ones that control the data.
“There’s also a continued trend and
movement to transferring risks in
the most cost efficient way possible.
Expenses compression is becoming
real, and those entities throughout
hroughout
the continuum that can serve
identical or even similar roles
more efficiently will havee an
advantage,” he explains.
Jewett, who most recently
ntly
ermuda-
served as president of Bermuda-
based carrier Endurancee
Specialty, reckons
that Obsidian is
designed to avoid any operational and
distribution channel conflicts that can
arise between carriers and both MGAs
and reinsurers.
“We see MGAs and risk aggregators
dealing with issues such as channel
conflict where they have a programme
and they want to use a carrier that’s
already established in this space. The
carrier sometimes takes the view
that it doesn’t want to compete with
itself and/or cannibalise their existing
portfolio,” he says.
There’s also a diversification element:
“MGAs depend on the issuing carrier
for their lifeblood, and naturally they’re
aware of concentration risk. Some
are saying to us that they like their
traditional carrier, they’re doing a good
job, but they’d like to diversify their
partners and have alternatives, rather
than ‘put all my eggs in one basket.’”
Jewett adds that there is a “pull
factor” from reinsurers who want to
support profitable MGA business but
don’t want to be a competitor with the
primary carriers they’re supporting
as a reinsurer. “We provide reinsurers
who have this sentiment profitable
business that they otherwise would
not see, especially since a lot of the
better business is kept net by the
larger traditional programme carriers,”
says Jewett.
“A platform like ours is positioned
very well to succeed in this
environment, especially since we are
not
ot eencumbered
cu be e or distracted by
legacy systems,
sys issues, or ways of
business,” he adds.
doing bu
Obsidian Insurance
Obsid
Company will initially be an
Compa
admitted carrier in over 30
admitte
states, aand Jewett also sees
opportunity in surplus
oppo
(non-admitted)
lines with Obsidian
May 2020
Specialty; he plans to expand licensing
to enable that side of the business
in Q3.
Obsidian will enter GL, umbrella,
professional liability, small
commercial, and commercial auto as
well as other lines, Jewett says.
“What will distinguish us from
some other markets is our capability
to take a modest amount net on our
own balance sheet,” he notes. “That
will increase opportunities with both
reinsurance panellists and also MGAs.
Many now focus on the economic
alignment between MGA, insurer
and reinsurer, and we see ourselves
as an underwriting company first,
not a ‘credit pass-through company.’
We want all our relationships to
be sustainable, and it is obviously
much easier to accomplish that if the
business is profitable and all parties
involved are making money.”
Despite the pandemic, Obsidian is
still on track to open for business in
the summer. “On a practical level,
because we haven’t had an office,
a small group of us including our
banker, Piper Sandler and our sub-
adviser, BMS, have been accustomed
to working remotely over the last
months as a core group,” says Jewett.
“So COVID-19 hasn’t disrupted us in
the same way as if we had been going
into an office every day and having a
lot of ‘in-person’ protocols. We have
been able to communicate fairly well
with clients, brokers, prospective
vendors and others using video calls.”
Jewett’s team includes Chief
Operating Officer Craig Rappaport,
most recently COO of Specialty P&C
at the Hanover Insurance Group,
and Chief Legal Counsel Emily
Canelo, who previously served as
Chief Counsel for Reinsurance and
Insurance at Endurance.
Jewett says he has been laying
a lot of groundwork over the last
18 months, talking to MGAs but
also to reinsurance brokers, who
are frequently involved in sourcing
business and working on Obsidian’s
behalf to place the reinsurance.
“We have agreements on a number of
programmes, and we’re confident that
we’ll hit the ground running and bind
those programmes over the next few
months,” he adds.

Legacy-market relief
for COVID-19 woes
By Dan Linden, Head of SOBC DARAG Bermuda
L
ike everyone else, legacy
market operators are feeling
the impact of the COVID-19
crisis. Operations and opportunities
alike are being affected. However,
in stark contrast to the distressing
slowdown the pandemic is inflicting
on other sectors, the run-off market is
entertaining an uptick in enquiries.
COVID-19 is seriously impacting
the solvency ratio of many insurers
and reinsurers. So far none appear to
be imperilled, but the combination
of asset-side depreciation, COVID
claims, premium returns, and
exhausted prior-year reserve surpluses
means many will soon hold less capital
against their liabilities than they, their
shareholders, or the regulators and
ratings agencies are comfortable with.
We are already beginning to see
companies accelerate planned sales of
old-year books of business. Insurers
realise disposals free-up regulatory
capital easily and swiftly. This may be
a necessity for those that have taken
a hit both on the asset and liability
sides of their balance sheets. In the
current environment, given the utter
uncertainty over the timing of any
asset-side rebound, it is much easier to
unload from the liability side. It allows
insurers proactively to mitigate the
capital impact of the COVID-19 crisis.
Additional uncertainty over the
quantum of future claims makes such
capital-securing moves even more
urgent. Live carriers are waiting in
earnest to learn the impact of the
crisis on unexpired risks in areas
including contingency and workers’
compensation, and to assess the
potentially crippling cost of judicial
and government interventions into
areas such as coverage under business
interruption policies. Fortunately for
those seeking to transfer portfolios
of risk, legacy providers tend to carry
very few unexpired risks, so they are
relatively well insulated from COVID-
related claims inflation.
If the current widespread lockdown
conditions are sustained, risk carriers
may face a further, complicating
reason to accelerate planned legacy
transfers. Insurers expecting an
influx of additional claims, valid or
otherwise, may see their temporarily
depleted claims staff inundated by
work. One natural reaction would be
to de-emphasise legacy portfolios.
Shifting old-year portfolios more
quickly to third-party specialists will
free up staff to deal with the surge of
unexpected claims.
Subject to their investment strategy,
many legacy providers will bounce back
quickly from the asset-side decline,
despite the common argument that
since they lack a stream of income from
renewing policies, run-off carriers must
shoulder greater asset risk than live
insurers. That’s not true in all cases.
Some run-off companies’ conservative
approach to investment has reduced
the impact of recent capital markets’
volatility on their net assets.
Insurers considering the sale of
legacy portfolios should analyse
May 2020
DARAG 33
the hits that legacy carriers have
endured on the asset side, and note
the impacts relative to the run-off
carriers’ liabilities and strategy.
Some are reliant for their profitable
success on asset returns, but others
treat investment income as purely
additional. Instead they rely on
liability management and transfer
premiums to support profitable
operations. These companies remain
able to provide live carriers with
confident solutions to the significant
pandemic challenges they may face.
Regulators around the world are
certainly engaging with legacy carriers
about the impact of the asset-side
hit they have borne. Those that are
asset-centric may need to rethink
their strategy. Meanwhile, strong
legacy companies are weathering
the COVID-19 storm, and can assist
when insurers decide they could use
some balance sheet first aid before the
regulators pay them a visit.
Dan Linden
Head of SOBC
DARAG Bermuda
34 COVID-19 special report

May 2020

COVID-19 and P&C rates:
A ‘hardening’ question
What will the pandemic’s overall impact be on pricing?
By Shawn Moynihan, Editor-in-Chief
W
hen things have
reached the point
where some
insurers are returning premiums
to policyholders, partly out of
good faith and partly due to
“forced” improvement in claims
performance, one knows that
the Property & Casualty industry
is in the midst of some strange
days indeed.
As of this writing, the
COVID-19 pandemic has taken
the lives of more than 140,000
people worldwide and in the
U.S., economic stresses are being
felt from Wall Street to Main
Street. Organisations great and
small have furloughed or laid
off personnel, with no end in
sight at the moment as to when
conditions will be stabilised to
the point where people will be
able to return to their jobs –
provided those positions remain.
In the U.S., the number of
citizens seeking unemployment
benefits has topped the 22
million mark.
Small to mid-size businesses
are among those hit the hardest,
with typically few reserves to
rely on and in need of relief. The
situation for those policyholders
will grow more dire in weeks
and months to come, as rents
come due and other expenses
mount with revenue seriously
impaired. Pressure has been
mounting by state government
officials to try to force carriers to
pay out on business interruption
claims for policies that explicitly
excluded virus triggers.
While such a scenario seems
unlikely – at least, the industry
hopes so – the question arises
as to whether claims activity
COVID-19 special report 35
spurred by the coronavirus will level of change seen since 2003.
accelerate the consistently (if “I’m not sure we’d get to a ‘hard’
slowly) hardening P&C market. market in the environment
Issues of BI coverage aside, where we started in 2020,” he
executives from several ratings says, despite the pandemic’s
agencies tell Reactions that devastating impact on the
improved performance in economy.
lines like personal auto (an “COVID-19 does not change
unprecedented reduction in the capitalisation level of the
vehicles on the road equals industry,” Carol Pierce, Senior
fewer accidents) and even Director in the Insurance Group
workers’ compensation – a at Kroll Bond Rating Agency,
line of business that was points out. “Fortunately, the
already significantly improving Property & Casualty insurance
before clients’ headcounts industry is well-capitalised
were greatly reduced in a very right now.”
short time span – would offset Bruce Ballentine, Vice
the increased claims activity President/Senior Credit Officer
expected in employment at Moody’s, noted the pattern
practices liability, D&O and of rising rates over the last four
other segments in months years, with bigger increases
to come. each year in general liability,
“
The lines of business that are hardest
hit will see hardening. Companies will
be more targeted in pushing for rate
where they need it the most, rather
than across the board.”
Stefan Holzberger, AM Best
What we will see, they say, is commercial auto and other key
continued pockets of hardening lines as the U.S. economy was
– but a true “hard” market will improving, “but we think this
remain elusive. This is due to latest set of events has pulled us
several factors, not the least of back from that,” he says.
which is that the industry was There are certain lines of
well-capitalised coming into this business in which rates will
year, with pricing improvement go up over time, he adds, but
steady in numerous lines where overall the economic downturn
it’s been needed most. – and scrutiny by regulators –
Jim Auden, Managing Director will temper that activity: “In this
at Fitch Ratings, notes that environment of a soft economy,
commercial lines rates were up insurers will be wary of seeking
7.5% in Q4 of 2019, the highest rate increases.”
May 2020
36 COVID-19 special report

According to S&P Global
Ratings Senior Director
Taoufik Gharib, requests for
rate increases in personal lines,
such as homeowners or auto,
or even in commercial lines
such as property and GL for
small businesses – especially in
regions hard-hit by COVID-19 –
by primary-side insurers would
not be looked upon favourably
by regulators. “That would not
be perceived as ‘appropriate,’”
he says.
workers’ comp for healthcare
workers and first responders;
EPLI, as former employees sue
after losing their jobs; trade
credit; aviation; and event
cancellation.
Pierce at Kroll believes one
line of business in particular will
suffer greatly.
“The mortgage insurance
industry is definitely going to
get hit, and harder than D&O
will,” she says. In this very
concentrated market, she adds,
personal auto: workers’ comp
rates are based in part on the
number of employees, which has
dropped at many organisations.
It’s not unusual for policyholders
to expect something back, since
they would be overpaying.
The California Department
of Insurance recently released
an order for insurers to refund
premiums in response to risk
exposure reductions in March
and April in a number of lines,
including personal auto, workers’
compensation and commercial

“
You’ll see the art of crafting policy
terms and language will come into play
heavily now. The industry feels they’re
pretty well covered on standard forms,
but unique language in coverage
descriptions will be more suspect to
being challenged in coverage to BI.”
Jim Auden, Fitch Ratings
“Consumers are already the expectation is that there will
bombarded,” adds Pierce. be an accelerated number of
“It’s going to be hard to push defaults. “That will present pain
price increases on Main Street to the industry.”
America when 13.5% of the There’s also the uphill battle
workforce is unemployed.” that’s just beginning in the arena
of BI claims. Even if the policy
Increased targeting language is considered cut and
“The lines of business that are dry by the industry, that doesn’t
hardest hit will see hardening. mean plaintiffs will see it that way.
Companies will be more “You’ll see the art of crafting
targeted in pushing for rate policy terms and language will
where they need it the most, come into play heavily now,”
rather than across the board,” says Auden. “The industry
says Stefan Holzberger, Senior feels they’re pretty well covered
Director, Chief Rating Officer at on standard forms, but
AM Best. unique language in coverage
“You could argue that personal descriptions will be more
auto, for example, would see suspect to being challenged in
significant improvement in coverage to BI. We’ll have to see
performance just because of the how that unfolds.”
reduced number of miles driven. Holzberger adds, “I wouldn’t be
If that lasts for two to three surprised if those types of cases
months in 2020, that could be a had to go through appellate and
pretty significant improvement state and supreme courts. Those
in loss ratio,” he adds. may take years to adjudicate,
Among the sectors that will which would come at a pretty
be hit as a direct result of the high cost to the industry.”
pandemic will be D&O, as
shareholders take legal action Impact of givebacks
against company boards due Returns of premium being seen
to plummeting stock prices; by insurers are not limited to
multi-peril. Fitch expects other
states to follow suit.
Pierce believes that as it
examines the details of each
claim, the industry might do
well to show consideration
where it’s appropriate. “It’s a
stressful time for everyone, and
that makes claims handling all
the more difficult. It’s a critical
time when insurance companies
could do a lot of good, to get out
ahead of this,” she says.
The premium givebacks and
discounts by auto insurers,
meanwhile, are not expected
to affect long-term market
profits or individual company
ratings, says Fitch. These
include State Farm’s $2bn
dividend programme for mutual
policyholders and GEICO’s 15%
discount (estimated at $2.5bn)
being offered to renewing
policyholders.
Fitch views those premium-
return actions as “a proportional
response to recently
emerging trends on claims
and underwriting exposures,
and do not represent an
undue percentage of annual
premiums,” the agency said in
a note. Those givebacks, the
agency added, will reduce the
level of earnings in months to
come but would not lead to large
losses for insurers.
However, Fitch added,
“greater expense pressures
may materialise with overall
premium volume declines if
a more prolonged economic
recession develops.”

May 2020
Thousands of industry professionals have made St. John’s University’s Maurice R. Greenberg
School of Risk Management, Insurance and Actuarial Science their springboard for success.
See why at stjohns.edu/srm.
38 Reinsurance broking
Life’s a Beach
Rise in demand, Aon/Willis deal paint a rosier picture for reinsurance broking.
By Mark Richardson, London Editor
A
cross all industries the
coronavirus has created new
and unique hurdles, but in
the reinsurance broking sector there
may be reason for tempered optimism
at the current landscape.
Jason Howard, CEO of re/insurance
broker Beach, tells Reactions that
during the recent 1 April renewals
the firm picked up new clients, and
he is anticipating a healthy growth in
revenues this year.
“We’ve grown double digits for as long
as I’ve been with the company, and
looking at our revenue projections for
this year we think we will continue to
do so,” he says. “We are seeing a growth
in demand and have picked up quite a
lot of new business already this year.”
Reinsurance brokers have largely
been insulated from the revenue losses
primary brokers may see from clients
in the hardest-hit classes. Even if the
primary carriers have had to accept less
premium this year, the shock to asset
bases caused by COVID-19 means many
firms will be buying more reinsurance
to protect their solvency. The same may
be true of reinsurers looking to buy
more retrocessional cover.
“Already insurers and reinsurers
have seen the value of their asset base
hit, and no matter how conservatively
invested they are this is going to have
an impact on solvency margins,”
Howard explains. “They have to work
out what that means to them. In a
world where the assets part of one’s
balance sheet has been somewhat
compromised, you might consider
taking volatility away from the liability
side, which would suggest more
reinsurance being bought.”
Price rises were in line with
expectations at 1.4, according to
Howard. However, with a rise in
demand coinciding with a fall in
reinsurance capacity caused by the hit
to asset bases, accelerated rate hikes at
mid-year renewals seem likely.
Howard sees longer-term
Jason Howard
opportunities in the sector beyond the
impact of COVID-19.
Aon’s acquisition of Willis Towers
Watson will bring together two of the
big three global reinsurance brokers,
and Howard anticipates there will be
subsequent dislocation of talent and
clients for mid-size brokers like Beach
to snatch up.
“Clearly, opportunities came out
of the merger between Marsh and
JLT, and I think there will be even
more opportunities from the merger
of Aon and Willis Re because it’s a
bigger beast,” he says. “From Beach’s
perspective we’re always on the
lookout for talented people who bring
ideas, expertise and embody our
partnership approach.”
If the deal proceeds, Howard
estimates that 80%-90% of the
brokered reinsurance market would
be controlled by either Guy Carpenter
or Aon, and he thinks clients want
more options.
“This concentration is not good
for clients, and I’m not sure it’s
particularly good for the market,”
says Howard. “When you’ve seen
consolidation in the past, though I
don’t think we’ve ever seen it quite so
concentrated, it gives the opportunity
for others to push into that space with
more bespoke and specialist offerings
as clients and markets are going to
want choice at some stage.”
Howard wouldn’t be surprised to
May 2020
see M&A activity among mid-size
reinsurance brokers in response to
Aon and Willis Re merging, but he is
confident Beach will remain part of
insurance intermediary Acrisure.
“We have a very supportive parent
that is keen to help us grow,” he says.
“We are operating in a dislocated
market where there are a lot of people
shocked at now having to work at firms
that have undergone an unexpected
change in ownership; Beach represents
a place that can provide continuity for
the foreseeable future.”
Even before the pandemic, Howard
says Beach was used to speaking with
parties in Europe, Bermuda and the
U.S. by phone, putting the firm in a
strong position to ride through any
near-term communication challenges.
Howard predicts the biggest test for
carriers adapting to digital placement
of reinsurance contracts will occur in
the London market. However, in the
longer term he thinks this experience
during the pandemic will help to
modernise how the market operates.
“The London market has been quite
slow in adopting electronic trading,”
he says. “That’s not just in reinsurance
– everyone has had to get used to the
new norm. That is inevitably going
to affect working practices going
forward.”
While the industry deals with the
unexpected market conditions the
coronavirus presented, Howard says
keeping an eye on longer-term trends
is key.
“We have to react to the challenges
ahead of us, but we’re already thinking
about what happens this year, next
year and the year after,” Howard adds.
“We’ll help our clients respond to the
pandemic and the impact that will
be felt. But longer term, the trend in
the industry is moving toward highly
bespoke, analytically sophisticated,
capital efficient products and solutions
for clients. Beach is perfectly suited to
thriving in this environment.”
40 Interview

Postlewhite: Leading
in the age of COVID-19
QBE Re’s new Managing Director discusses taking on the position during the coronavirus
and how it will affect the reinsurance sector.
By Mark Richardson, London Editor

W
hen Stephen
Postlewhite joined
QBE Re as Deputy
Chief Underwriting Officer
in November 2018 as part
of a planned succession, he
never could have anticipated
the unique challenges facing
him two years later under
unprecedented global economic
circumstances.
The worst pandemic in a
century has taken all financial
and political leaders by surprise,
who are all in search for the best
course of action to minimise
damage. For re/insurers, while
the full extent of claims losses
has yet to be determined, the
immediate realisable damage
has been on the assets side of
the balance sheet.
Taking over as QBE Re
Managing Director on
1 April, in the wake of
serious stock market
volatility and one week
into UK Government
lockdown measures,
Postlewhite has led
QBE Re’s response in
unheralded conditions.
As a group, QBE has
been one of the quickest to
respond to the asset shock,
raising $825m in capital during
April – $750m through the sale
of equity.
As reinsurers seek the
capitalisation to meet anticipated
rising demand for reinsurance
among cedants at mid-year
renewals, Postlewhite has put
in bids for increased capacity
within the reinsurance unit,
particularly around cat. He tells
Reactions QBE Re will “attract
our fair share of that additional
capital raise,” as he eyes new
prospects the capacity would
allow the business to pursue.
“Insofar as we can find really
strong opportunities, and I think
there’ll be quite a few of those
around over the next six months,
I think that capital will come in
our direction and will allow us
to increase our risk appetite,” he
says. “And that’s fantastic. Doing
that in a controlled way around
where the best opportunities are
– that’s how to run an insurance
business.”
Postlewhite predicts
the biggest impact of the
coronavirus on the reinsurance
sector will come on the assets
side of the balance sheet,
making QBE’s early response
to raise capital particularly
significant; it positions the
business well for profitable
growth, he says, despite the hit
to written premiums in several
key lines of business among
primary carriers.
“With balance sheets having
been so significantly impaired
over the last three months, there
is going to be – and we can
already see – enhanced demand
for additional reinsurance
capacity,” he explains. “It’s
inevitable, really.”
To protect solvency, he says,
cedants largely have three
choices: reduce exposure, raise
capital or buy more reinsurance.

“ The fastest way, and the way to

continue servicing clients as you
were, is to buy more reinsurance.
That enhanced demand I can see
actually far outweighs the areas
where we will inevitably see some
shrinkage in top line for insurers.”
Stephen Postlewhite, QBE Re

May 2020

“The fastest way, and the way to
continue servicing clients as you
were, is to buy more reinsurance,”
he adds. “That enhanced demand
I can see actually far outweighs
the areas where we will inevitably
see some shrinkage in top line for
insurers.”
And with increased demand
and reduced capacity among
reinsurers, Postlewhite’s view
is it will significantly accelerate
the rate hardening already being
seen before the pandemic hit.
“The cost of risk transfer, if you’re
effectively shrinking the global
reinsurance capacity – which is
inevitable – means you have to
charge more for what is a finite
resource,” he explains.
“It hasn’t been very finite
over the last five to seven years,
which has driven a major
softening of the market, which
we are starting to see turn – but
I can’t see why it wouldn’t now
drive a significant increase in
the price of risk transfer.”
At the upcoming 1.6 renewals
he is also expecting a fall in
third-party capital, a significant
part of Florida wind, adding to
the pricing pressure.
“You’ve almost got the perfect
storm there,” he says. “There are
many factors that will lead to
a difficulty in placing the level
of cover that was there. Florida
wind already looked like it
should be taking a reasonable
price increase, and the shrinkage
of capacity means it’s going to be
beyond what we were initially
expecting by some margin.”
Submissions are generally
being made earlier for upcoming
renewals, as cedants prepare for
a difficult round of negotiations.
Paradigm shift?
Postlewhite says after years
of rate adjustments lagging
behind primary and retro, the
current environment could
represent a paradigm shift for
the reinsurance sector. The next
couple of months, he adds, will
dictate whether reinsurance
enters a genuinely hard market.
He predicts more reinsurers
will look to raise capital to
provide sufficient capacity
at upcoming renewals, but
the need to protect solvency
will also likely lead to more
retrocessional buying,
potentially accelerating rate
even faster than reinsurance.
“ With balance sheets having
been so significantly impaired
over the last three months,
there is going to be – and we
can already see – enhanced
demand for additional
reinsurance capacity. It’s
inevitable, really.”
“Retro has been a bit of a
bright spot in terms of rate,”
he says. “We were already
expanding what we do on
the retro side, and I see that
continuing.”
Any decisions on retro buying
at QBE Re will largely come
down to price, Postlewhite
adds. With the capital raise,
purchasing additional retro
cover isn’t critical, and he is
satisfied with the group’s current
retro structure.
Another COVID-19-related
factor currently driving rate
hikes is the current uncertainty
around the industry’s exposure
to business interruption
claims. The 1 April renewals
saw several reinsurers seeking
specific COVID-19 exclusions,
and Postlewhite expects this to
continue at mid-year renewals.
He says the industry has long
been aware of the potential
accumulation risk, and has thus
sought to exclude pandemic
coverage.
However, recent weeks have
seen the contract wordings of
primary carriers coming under
increased scrutiny, as insureds
claim their policies do cover the
risk, even if unintentionally so.
“I do believe there will be some
May 2020
Interview 41
losses out there, and I think
they’re going to be low frequency
and very high severity as we sit
today,” he adds. “And reinsurers
will potentially be on the hook
for some of those.”
Were the U.S. to proceed with
legislation forcing insurers to
cover business interruption
losses, he says it would cause
the industry to become “deeply
threatened.”
Until coverage disputes are
resolved, the industry’s business
interruption exposure remains
undetermined. But in some
COVID-19 affected classes,
such as travel, D&O, event
cancellation, trade credit and
life, Postlewhite is confident the
business is not overexposed.
He adds that even without
the strain of additional losses,
COVID-19 will leave a legacy on
the entire industry. “There will
be some longevity to the changes
in the structure of the market,”
Postlewhite predicts. “I hope this
becomes a stimulus for more
electronic trading, and more
working from home and flexible
working environments.”
This, he adds, could help attract
talent into the market and bring
about a culture shift.
So far, cedants, brokers
and reinsurers alike have all
successfully managed the
process of renewals while
working from home.
Postlewhite says more detailed
negotiations, especially on
new business, is tougher
to work through via video
conference due to the number of
participants, but that these are
not insurmountable issues.
“There are a lot of ancillary
benefits to having that
interaction and over the next few
months, it’s really about forcing
that to happen in a different way,”
he says. “That means keeping up
with everybody who we would
consider to be a customer in a
much more formalised way. Time
will tell whether that’s as effective
as the mechanisms that we’ve
used to do that in the past.”
42 Munich Re
Cyber intelligent
Is your company practicing good cyber hygiene during the pandemic? By Steve Levy
I
t’s been impressive to watch how the
re/insurance industry, along with
many others, has nearly seamlessly
shifted to remote work to obey civil
and business requirements to shelter in
place during the COVID-19 pandemic.
Technology, teamwork and ingenuity
have enabled us to continue to serve
our customers and support each other
despite the physical distance we must
necessarily put between us for now.
Digital tools and technology
enable us to stay connected with our
teams, customers and loved ones –
making us more resilient as families,
communities and organisations. While
sheltering in place may help employees
reduce their physical exposure to
COVID-19, it may be increasing their
exposure to cyber risk.
One of the most popular scams
favoured by cyber criminals is
phishing – which can lead to financial
consequences as well as data breaches
and other negative reputational
consequences for an organisation.
According to a report from Google, as
of 31 March, active phishing websites
had increased 35% since the beginning
of the year. Some security experts are
seeing as much as a 600% increase in
phishing scams since earlier this year.
According to cybersecurity specialists,
phishing is a cybercrime in which a
target is contacted via email, telephone
or text message by a bad actor posing as
a legitimate individual or organisation to
trick the target into providing sensitive
data such as personally identifiable
information, banking and credit card
details, and passwords. This information
can then be used to access accounts
or data, resulting in identity theft,
financial loss and reputational damage.
A phishing email may also include an
attachment that contains payloads like
ransomware or other viruses that could
target an individual’s computer or a
company’s network to steal or expose
data. Organisations could face massive
penalties, fines or customer turnover if
sensitive data is breached.
Phishing is not new. The difference
now is that cyber criminals appear
to be actively capitalising on the
coronavirus scare.
With a greatly expanded work-
from-home population as a result
of shelter-in-place orders in many
countries, cyber criminals are finding
greater opportunities to go phishing.
During these unusual circumstances,
there may be a disconnect among
co-workers, and between workers and
their companies and IT departments.
Many may be less wary about
opening emails that seem to present
authoritative information from a
seemingly trusted source or clicking on
seemingly innocuous but potentially
damaging links.
Small and medium-sized
organisations may be more vulnerable
to the financial impact of a phishing
attack. Often, these organisations
don’t have the IT infrastructure to help
monitor for cyber risks.
Risk-reduction tactics
Phishing preys on people and their
emotions during time of catastrophe.
Therefore, it’s critical that all
employees (including CEOs and
other executives) maintain security
awareness. To reduce vulnerability
to phishing attacks, employees and
executives must scrutinise every email,
avoid downloading attachments from
unknown or unverified sources, and
think twice before clicking on a link in
any email from an unknown sender.
Providing employees with company
computers is another best practice. This
allows for greater device management
where the organisation may control any
device used to log in remotely, quickly
update software patches, and maintain
configurations aligned with corporate
security policies.
Whether it’s phishing or another form
of cyber attack, cyber security experts
recommend that organisations should
consider these top three best practices
to help protect the company and its
May 2020
employees against a data breach:
• Encrypt sensitive data.
• Perform periodic back-ups
and ensure back-ups are tested
periodically.
• Update and patch your systems and
applications on a timely basis.
Finally, even in the throes of this
pandemic, it’s never too late to develop
a business continuity plan (BCP),
inclusive of a cyber incident response
plan if your organisation doesn’t
already have one.
Good security practices require that a
BCP be updated after any event when
the plan fails to work. But periodic
testing and monitoring of a plan, no
matter when it was developed, are the
best ways to ensure that businesses
can recover quickly during and after a
disaster.
Creating the BCP is ideally a joint
responsibility between operating
divisions within a company or non-
IT support area and the IT team,
but often executive sponsorship
and leadership of the plan make the
difference between success and failure.
Technology has been critical in
allowing many people to work remotely
and has helped reduce the spread of
COVID-19. However, organisations
must ensure that the adoption of
technology goes hand-in-hand with
the implementation of good cyber
hygiene, including strong cyber security
controls in conjunction with cyber
insurance, and a BCP to help protect an
organisation’s bottom line and promote
a faster recovery in the event the bad
actors are successful.
Nothing presented here is intended to be legal,
underwriting, financial or any other type of professional
advice, and the recipient should consult with its own
counsel or other advisors to verify the accuracy and
completeness of any information provided here and to
determine its applicability to the recipient’s particular
circumstances.
Steve Levy
President and CEO,
EO,
Munich Re US
 43

INVESTING IN
TURBULENT TIMES:
CIOs IN FOCUS
May 2020
44 CIOs in focus
Rollercoaster ride
COVID-19 has made the job of insurance company CIOs
exceptionally challenging as they navigate the current
financial landscape.
By Marc Jones, Associate Editor
D
escribing the current state
of the global stock markets
as we enter May is, in a
word, problematic. Over the past few
months the impact of the COVID-19
coronavirus on the global economy
has caused stock indices all over the
world to swing wildly, although mostly
downward.
A good example is the Dow Jones
Industrial Average Index. At the start
of the year it was hovering at around
30,000 points. Then in a matter of
weeks it fell to 20,000 points, swept
briefly up again and is at time of this
writing swinging erratically – up and
down.
To make matters worse, the
lockdown has forced many companies
into a form of stasis, unable to operate
as normal. As a result, business
confidence has fallen in many areas as
companies able to operate try to adjust
by having employees work from home.
As this issue of Reactions went to
press it was becoming increasingly
clear that the economic dislocation
from the coronavirus crisis will have
a lasting economic impact, tipping
much of the global economy into the
first recession since the great financial
crisis of 2008-09.
The current environment presents
a fresh set of challenges for Chief
Investment Officers and other executives
at insurance companies whose task it is
to determine where to invest.
As Wojciech Herchel, ALM Director
at Schroders, points out, insurers are
“liability-driven” investors in the sense
that they need to invest their money
to meet their liabilities when they fall
due, subject to capital and accounting
considerations. In continental
Europe, general account business
dominates – and traditionally, it has
come with investment guarantees
for policyholders. One of the main
considerations for an insurance
company thus will be creating and
maintaining a portfolio of assets that at
least meets those guarantees.
Peter McGloughlin, Head of UK and
Ireland Insurance at DWS, adds that
strong, robust, and reliable investment
returns can help drive shareholder
value versus competitors. That said,
above all else, insurance companies
need investment portfolios to preserve
capital, pay claims or annuitants, and
meet regulatory solvency requirements.
“COVID-19 has certainly created
mark to market volatility and potential
capital strain,” says McGloughlin.
May 2020
“However, in the longer term if credit
defaults do not emerge in the way
some market prices imply (particularly
in high yield), then overall we see
wider credit spreads as a good longer
term opportunity to increase book
yield and overall investment income
for insurers.”
He notes that some insurers,
particularly in the P&C sector, “have
been struggling with a soft market
on underwriting combined with
significant falls in investment income
on the asset side over the last few years
– all essentially due to excess liquidity
in the financial system. Now, following
the COVID-19 market correction,
for the first time in 10 years we’ve
seen real dispersion between asset
prices again and exciting investment
opportunities.
“Clearly there may be some short-
term pain for insurers on existing
portfolios,” he adds. “However, for new
business and/or reinvestment, the
yield outlook is looking much more
attractive for insurance investors.”
The asset mix
When asked what assets insurance
companies tend to invest in, Herchel
explains that allocation varies
between geographies and sectors (for
example, life and non-life). However,
at the high level, insurers tend to be
predominantly fixed-income investors
– again, driven by the features of their
liabilities.

Thus a bulk of an average portfolio
will be fixed-income, investment-
grade assets, typically local currency
government and credit (subject to
market depth) with some allocation
to overseas assets and more tactical
allocations, which can be any of high-
yield credit or emerging market debt.
Insurers also became big investors in
private credit, particularly in assets
like real estate debt or infrastructure.
Depending on capital position and
risk appetite, equities and physical
property also feature in their
investment portfolios – although those
allocations tend to be on a smaller
scale (rarely above single digits).
According to McGloughlin, insurers
are traditionally credit-spread
investors. They match liabilities with
the “risk-free” part of the portfolio and
typically generate investment returns
markets. Some repositioning may be
required and new opportunities may
emerge, although the relative value
will need to be reassessed given the
repricing taking place in the public
bond markets.”
The coronavirus impact
What, therefore, has the impact of
the COVID-19 crisis been on these
assets so far? Herchel thinks that
it’s fair to say that the first reaction
to the coronavirus for his clients has
been a focus on risk management
of the existing portfolios. He says
that approval processes for new
investments have been slowed until
more clarity can be gained on what
COVID-19 and the global lockdown
means for the economy and different
subsectors.
CIOs in focus 45
term, effectively providing liquidity for
distressed sellers.”
Herchel feels that on the real estate
front there is a lot of risk management
going on as well, due to the fact that
tenants will be struggling to pay rent.
More generally on the private assets
origination front, activity seems to
be slowing down, he adds, due to
practicalities of the requirements of
social distancing: for example, valuers/
surveyors cannot get to properties for
inspections.
According to McGloughlin, the key
moves are very much about security
and issuer selection. He says that the
actions of the rating agencies have
been “crucial” and insurers need
to assess the risk of being forced to
act if bonds are downgraded below
investment grade. In many cases this

from the excess credit spread above a
capital reserve for any expected loss
given defaults. As such, the volatility
in credit spreads that DWS has seen
over the last month (mid-March to
mid-April) has been a wild ride for
insurance portfolios.
“Now at least with the unprecedented
action by the Fed and central banks
it gives everyone time to ensure
portfolios are well-positioned for
the various post-COVID scenarios,”
McGloughlin points out. “In bond
markets we’ve seen record-breaking
new issuance of investment-grade
corporate bonds in the U.S. and
Europe. Bonds have been printing
with 50 to 100bps new issue
premiums, offering very enticing levels
to insurers who can increase allocation
to corporate credit. It’s been a super
busy period, with over €50bn new
issuance in Europe and $113bn in the
U.S. in the first week of April alone.”
In addition, McGloughlin says that
insurers have also been increasingly
investing in private market assets
over the past few years. Here, given
the mark to model/internal rating
nature of these assets, DWS hasn’t
seen the same price volatility as in
public markets – yet. However, he
adds: “Given lower transparency it is
crucial for insurers to be diligent on
manager oversight and understand
how asset managers are adapting
to the COVID-19 impact in private
“
In the longer term if credit defaults
do not emerge in the way some
market prices imply (particularly
in high yield), then overall we
see wider credit spreads as a
good longer term opportunity to
increase book yield and overall
investment income for insurers.”
Peter McGloughlin, DWS
Herchel also claims that over the will very much depend on regulatory
years, insurers’ portfolios have become capital requirements, but managing
heavily geared toward BBB-rated the impact from “Fallen Angel” risk is
assets and that with the approaching a key focus for DWS’ insurance clients.
recession a large part of that universe “In private market assets,
could be downgraded to high yield, anticipating any change to internal
which will have important capital model ratings is also crucial,” he says.
implications. “In real estate debt, for example,
“Clients with tight capital position insurers need to start getting on top
tend to spend a lot of time managing of any potential changes to ratings if
this risk and rotating out of certain underlying tenants have temporarily
positions at risk of a downgrade,” says stopped paying rents due to COVID-19
Herchel. “At the same time, those in a disruption. Is this a short-term
better capital position have headroom manageable risk, or a sign of a longer-
to re-risk and are actively looking to term, more systemic impact on the
be opportunistically buying strong portfolio? And what are the realistic
credits that perhaps oversold. There workout scenarios if the manager is
is a potential for re-risking to also forced to take action?
extend to more esoteric assets for “We’ve also seen increasing
insurers, like securitised credit. A large opportunities for Private Equity
part of this market has sold off and Solutions (PES),” McGloughlin adds.
the sophisticated accounts identified “Here, DWS provides additional
this as an opportunity to earn a very capital to companies owned by private
attractive return over the medium equity funds normally for growth or

May 2020
46 CIOs in focus

continuation at the end of the fund
life. COVID-19 has led to a 200%+
increase in our deal pipeline as PE
funds look to shore up capital and/or
take advantage of M&A opportunities.”
According to Gareth Haslip,
Managing Director and Global Head
of Insurance Strategy and Analytics
for JP Morgan, the main effect of the
COVID -19 crisis has been a liquidity
crunch. Haslip says that a lot of market
participants saw redemption requests
in a very illiquid market. As a result,
spreads widened quickly in the absence
of an immediate and massive buyer
of last resort. On top of this, a lot of
sellers have no other choice but to
sell the better quality assets given the
absence of bids for the riskier ones.
“Therefore, we also saw a sell-off of
core government bonds and high-
quality short duration credit. Hopefully,
Central Banks’ actions should help
normalise these markets,” he adds.
can expect to see lower or negative
returns experienced in the asset
class,” he adds. It should be noted
that alternatives span a wide range
of underlying investments, and
performance will be driven by strength
of covenants and collateral in private
credit as well as the geographic and
sector exposures of private equity and
real estate. Also worth noting is that
alternative investments are often made
into smaller companies which could be
more affected by the crisis.
The regulatory eye
Mention of downgraded investments
became particularly pertinent as this
article was being written, as on 23
April the Bank of England’s Prudential
Regulation Authority (PRA) issued
a statement noting that on Thursday
26 March 2020, Sam Woods, Deputy
Governor and CEO of the PRA, wrote
to CEOs of UK Banks setting out the
further refers to published measures to
alleviate operational burdens arising
due to the COVID-19 outbreak.
“In this context, while Sam Woods’
letter itself does not address insurers’
internal credit ratings, some points in
the letter can be considered of wider
applicability beyond those insurers
using IFRS 9 to account for financial
instruments.
“Insurers are advised to read the
letter in its entirety. Of particular
relevance to the judgements
underlying internal ratings is the
paragraph stating that firms should
‘make well-balanced and consistent
decisions that consider not just
the potential impact of the virus,
but also take full account of the
unprecedented level of support
provided by governments and central
banks domestically and internationally
to protect the economy. The need for
well-balanced decisions also means
that due weight will need to be given
to established long-term economic
trends, given the challenges of

“ It is critical that insurers

conduct careful stress testing
around downgrades and plan
accordingly to avoid crystallising
capital losses.”
Gareth Haslip, JP Morgan
“Equity markets have fallen by around PRA’s position regarding IFRS 9,
25% from mid-February to date,” says capital requirements for their firms
Haslip. “This is comparable to the fall and loan covenants. According to
in equity markets seen over September the PRA, some insurance firms have
to October 2008 at the start of the GFC sought clarification as to how the
(also around 25%). In Europe, a typical points in that letter should be read
non-life insurer has around 7%-9% across to their internal assessments of
allocated to equity investments. As a loan creditworthiness and treatment
high-level estimate, the immediate of unrated assets.
mark to market impact of the equity According to the statement, “The
market falls would be around a 2% PRA’s expectations for the use by
reduction in the value of a typical insurers of unrated assets are set out
insurer’s investment portfolio.” in Supervisory Statement (SS) 3/17
Haslip also points out that alternative ‘Solvency II: Illiquid, unrated assets’
portfolios tend to invest in private (updated on Thursday 2 April 2020).
rather than public assets. This tends to Paragraphs 2.8A to 2.8L of the SS set
provide an advantage for alternatives out relevant expectations regarding
through dampened accounting risk identification and the application
volatility, since the underlying assets of judgements and methodologies. The
are marked to model rather than listed accompanying Policy Statement (PS)
on public markets. 9/20 ‘Solvency II: Income producing
“As time progresses in the current real estate loans and internal credit
crisis and lower earnings emerge, we assessments for illiquid, unrated assets’
preparing detailed forecasts far into
the future.’ Paragraph 5 of the letter’s
Annex includes further examples of
considerations that insurance firms
may find helpful when forming
their judgements on the impact of
COVID-19 on their internal credit
assessments.”
Finally, Haslip stresses one very
important point – that we are not at
the end of the crisis, and there remains
potential for further market volatility.
He adds that from a credit perspective,
the key risk for investment capital
requirements is the potential for
downgrades of A-rated bonds to BBB
and BBB-rated bonds to high yield.
“As the current crisis progresses, a
key risk for insurers is the potential for
downgrades to reduce their Solvency
II ratio through both increased capital
requirements on a lower-average-rated
portfolio alongside the reduction in
own funds driven by spread widening,”
Haslip concludes. “This could trigger
an insurer to become a forced seller
of downgraded bonds in order to
improve the capital ratio. It is critical
that insurers conduct careful stress
testing around downgrades and plan
accordingly to avoid crystallising
capital losses.”

May 2020
48 CIOs in focus
Protecting
assets in a crisis
SCOR Global Investments’ CEO says safeguarding should
be prioritised in the immediate term.
By Mark Richardson
A
ccording to the CEO of
SCOR Global Investments,
in the short term it’s better
to protect the value of company assets
than to look at seizing new market
opportunities.
François de Varenne says that since
the beginning of the COVID-19 crisis,
SCOR has frozen any reinvestment
activity, with all financial cash flows
emerging from the investment
portfolio being kept in short-dated
government bonds. The group took a
similar investment strategy decision
in 2007, and de Varenne believes
this ensures that the group is well-
positioned for the longer term.
“The significant amount of liquidity
we are accumulating should give us the
leeway to lock in quicker, higher yields
and higher financial contributions
as soon as the volatility recedes,” he
tells Reactions. “More orthodoxy in
lending criteria could indeed emerge,
with greater distinction being made
between issuers, more protective
documentation, and greater adequacy
between leverage and the cyclicality of
the business.”
When looking at where to invest,
while the IMF is forecasting a
worldwide GDP contraction of 3% for
2020, de Varenne warns default rates
will increase.
However, to an extent he says this is
difficult to predict given the strong but
not unlimited support of governments
and central banks.
“Default rates should particularly
impact companies with low cash on
hand or limited access to funding, all
the more so as the monetary policies
of the last few years have multiplied
zombie companies,” he adds.
As a result, de Varenne expects SMEs
to suffer the most from the downturn
compared to blue-chip companies,
particularly in sectors significantly
affected by the COVID-19 outbreak
such as airlines, leisure, hotels, oil and
auto. Businesses in such sectors as
technology should be less impacted.
In the immediate term, de Varenne
thinks the monetary and fiscal
response to this crisis has been
extremely significant, acting as strong
mitigation against a wave of default
rates and calming market volatility.
Nevertheless, over the longer term
he says the sustainability of major
countries’ debt levels will be back on
the agenda, and that a new sovereign
debt crisis cannot be excluded. The
issue of inflation should also resurface,
affecting where re/insurance groups
invest their assets.
“In this context, exposure to
sovereign debts should be carefully
monitored, although they are still
considered in the backward-looking
Solvency II framework as a safe
haven,” de Varenne adds. “The
sovereign bond portfolio must be
refocussed on countries that have
demonstrated their ability to control
their fiscal policycy and don’t
need recurring support
from their central ral bank.”
The correlation on among
traditional riskyy assets
is very strong when
ts peak,
volatility is at its
De Varenne notes. tes.
arket
During this market
shock, even thee flight-
aviour that
to-quality behaviour
should help U.S. S. treasuries
to perform has not
really worked.
Hence, he
adds, the
traditional
May 2020
equity/bond mix supposed to optimise
diversification has been sub-optimal.
“Instead of looking at statistical
historical correlation, there should
be more focus on the intrinsic non-
correlation of asset classes,” he says.
For traditional financial markets, this
may include consideration of ILS.
For re/insurers to make their
investment portfolios more resilient to
future market shocks, de Varenne says
a rigorous investment process, high
diversification and a deep culture of
risk management are key.
SCOR entered the COVID-19
crisis with a resilient and defensive
investment portfolio, he says,
with a risk profile voluntarily and
significantly reduced throughout the
second half of 2019.
Primarily this was through a
reduction in credit risk. Specific
de-risking actions since mid-2019
given included a strong decrease in
corporate bond exposure, particularly
on BBB- rated bonds to minimise
migration risk to the non-investment
grade category, on USD-denominated
high-yield bonds, which are
characterised by high exposure to the
energy sector, and on bank exposure
with the sale of non-SIFI U.S. banks.
He says SCOR currently has very low
exposure to listed equities and low
exposure to convertible bonds, which
have proven their capacity to absorb
downside equity risk, and have been
partially hedged since the beginning of
the year.
“We consider investment to be a
science with a rigorous risk-adjusted
investment process, and also as an
art where superior long
long-term
returns are achieve
achieved by
minimising the downside
d
risk of a portfol
portfolio,” he
says. “Diversific
“Diversification,
business resilie
resilience,
recurring cash fl flows
sustainabili are
and sustainability
conside
the main considerations
driving our invest
investment
decisions.”

Returning to
equities with
caution
Pool Re’s Ian Coulman on difficult decisions facing CIOs.
By Mark Richardson, London Editor
T
he dearth of clarity as to what
the full economic impact of
COVID-19 will be is making
it difficult for re/insurance chief
investment officers to tell where to
place their assets.
Companies in sectors like leisure,
entertainment and travel have been hit
harder by the lockdown measures than
others, and the valuation of some of
these firms will be looking attractive to
investors.
Ian Coulman, Chief Investment
Officer at Pool Re, tells Reactions
that the key for investors will be
distinguishing between those
companies that are in a position to
weather the COVID-19 storm and those
more inclined to falter and not recover.
However, with uncertainty also
stretching to how long government
imposed restrictions remain, this can
be difficult to assess.
“With so much uncertainty
surrounding the impact that
COVID-19 will have on economic
activity, let alone the social
quences, it is extremely
consequences,
difficult
lt to pinpoint specific types of
investments
ments that are attractive
ttractive at this time,” he
or unattractive
tells Reactions.
eactions.
“If thee markets were able
to assess
ess the cost of the
COVID-19D-19 pandemic in global
outputt and that the drag on
economicmic activity would last
for ‘X’ months/years, they
would be able to analyse
these numbers
and arrive
rive at
a reasonable
onable
ximation
approximation
of where financial markets should
be trading.”
Pool Re operates under a strategic
asset allocation strategy. This
means that as part of its quarterly
rebalancing exercise it has brought
the portfolio back to its strategic
targets, which included reducing
exposure to government bonds and
increasing the equity exposure. But
Coulman adds the group is cautious
at the present time on the impact of
market dislocation. He believes there
could be more volatility to come as
economic data and corporate earnings
are released.
“The dramatic reduction in official
interest rates and fall in government
bond yields, partly due to a flight
to quality, has left government
bonds looking very expensive,”
Coulman explains.
“It is understandable that investors
have flocked to these assets in an
attempt to preserve capital. Given
how low government bond yields
are, investors will ultimately move
out of such assets and re-allocate to
don’t
higher yielding assets – but I don’
think that time [has arrived]
just yet.”
Across Q1 and Q2
Coulman believes there
will inevitably be declines
in GDP, but due to the
swift and large fiscal
policy responses, the
economies should enter a
recovery phase in the
following six
to 12 months
assuming
the spread
May 2020
CIOs in focus 49
of the virus comes under control and
restrictions begin to lift.
“There are mixed views with regard
to the potential recovery and whether
it will be V-, W- or U-shaped,” he adds.
“Given the length of the lockdown
and the impact it is already having
on economic activity, the widely held
market view of a U-shaped recovery
appears likely.
“The bottom of the ‘U’ – or the period
of stagnation – is the real concern,
as a prolonged period will clearly
have a greater detrimental impact on
economic activity and growth.”
So far, Coulman is happy with how
his team on the investment side of the
business has managed working through
lockdown conditions. Meetings have
been held virtually, and Coulman says
the state-backed reinsurer has worked
closely with its members, constantly
assessing its online system.
Mental health is another aspect
Coulman says Pool Re has focussed
on during the lockdown, keeping
staff engaged on the social side with
activities including virtual quizzes
and generally keeping the lines of
interaction open as much as possible.
While he thinks it is too early to be
definitive on any structural changes
coming about off the back of the
pandemic, he anticipates it may lead to
firms reassessing the need for face-to-
face meetings.
“There might be greater use of
video technology, which could reduce
the amount of travel and any lost
productivity associated with it,” he
says. “The lockdown has also opened
the discussion of whether staff
can work from home more often,
potentially reducing their commute,
saving them money and improving
their well-being. Both of these
developments should also help climate
issues, to some degree.”
Companies will re-evaluate their
global supply chains, he adds, which
have proved vulnerable to sudden
stoppages as a result of the pandemic.
Since governments could use health
concerns to place curbs on trade, travel
and migration, Coulman also predicts
there may also be some significant
adjustments introduced to business
models amongst companies in the
trade and travel sectors.
50 CIOs in focus
Asset class spotlight:
fixed income
DWS executives weigh in on how investment strategies
have adapted in a highly volatile period.
By Shawn Moynihan, Editor-in-Chief
D
WS’ Robert McCollum, Head
of Portfolio Management-
Fixed Income Solutions,
and Lloyd Ayer, Head of Solutions-
Americas, discuss with Reactions asset
managers’ challenges faced in the
wake of the global markets’ response
to the pandemic, what opportunities
emerged, and the perils of searching
for yield in uncertain times.
What kind of dislocation did insurance
asset managers experience or observe
during the March period of volatility,
and into April?
Events during that period put
operational pressure on insurers from
a number of fronts as investment
personnel fielded a higher-than-usual
volume of inquiries from boards
and ratings agencies regarding
the financial impact to investment
portfolios and capital. Additionally,
some insurers may be looking to build
liquidity buffers due to heightened
premium or claim stressors; this was
a challenging objective in mid-March
specifically given market illiquidity.
Certainly, the volatility in markets
was extreme. Equity VIX set an all-
time record of 82.69 on 16 March, the
S&P 500 experienced its fastest sell-off
in history (declining 34% from the 19
February peak to the 23 March low),
primary investment-grade corporate
bond issuance set a record in March at
$259bn as companies sought liquidity
while spreads on the Bloomberg
Barclays Corporate Bond Index
widened from 95 on 24 February to
373 on 23 March.
Importantly, liquidity in markets
evaporated. Commercial paper funding
was strained, short duration corporates
widened significantly as accounts
looked to raise cash, and even Treasury
bonds and notes (particularly off-the-
runs and TIPs) had wide bid/offer
spreads and liquidity challenges. The
Fed intervened aggressively, cutting
rates, announcing massive asset
purchases and an alphabet soup of
lending and purchase facilities which
served to calm markets, capped by the
9 April announcement of an additional
$2.3trn of financing which further
rallied markets and improved liquidity.
Did pockets of opportunity emerge
in fixed income that previously were
considered overvalued?
In retrospect, one could say some
spread or non-Treasury sectors were
overvalued, though by historical
measures and given the previous
state of the U.S. economy, one
could certainly argue that a number
of sectors were fairly valued.
Nonetheless, levels have changed
considerably given what transpired.
So, while numerous pockets of
opportunity emerged, here is a specific
example: In the depths of the sell-off,
high yield spreads surpassed 1000 and
average bond prices fell below $80.
This was only the third time in history
that has occurred, and it has historically
represented a buying opportunity.
For companies with the investment
flexibility and available risk budget, this
may have been an opportunity to add
exposure to capture equity-like returns
with less downside volatility.
With all the stimulus injected into
the market, are there concerns or
areas where you are keeping
careful watch?
There are no near-term
concerns. Looking out
further, Federal debt
to GDP, even at these
low interest and tax
rates, could temper
May 2020
growth prospects. Corporate borrowing
is certainly ballooning, and the speed
of balance sheet recovery is in question
given the uncertainty on how long
before we return to life as we knew it.
Finally, one must pay attention to how
gold has responded in the wake of all
the central bank “money printing”; this
top-performer’s bull market may be just
getting underway.
Do events such as these alter how you
would position a core fixed income
strategy? Are you taking a new look at
sectors because of what might have
happened?
Certainly, the widening in credit
spreads created an opportunity in
investment grade credit. March’s
primary calendar provided an excellent
opportunity to add exposure in
high-quality borrowers, and through
mid-April the Fed had not yet begun
purchasing corporates; the market
rallied in anticipation of them doing
so. We believe support for short-dated
investment grade corporates will be a
strong technical for the next couple of
quarters. Similarly, the announcement
of TALF 2.0 will support structured
finance securities that are eligible.
Moreover, there are good opportunities
in non-eligible paper that widened
commensurately.
How would you extend risk to obtain
yield, or has the volatility presented
investors with new yield opportunities?
Do you need to ‘get creative’?
Given the valuations and the yields
available pre-crisis, certain portfolios
were underweight risk going into
Q1. As a result, some insurers are
in a position to take advantage
of opportunities within existing
mandates or allocate cash to rebalance.
The deciding factor is how one was
positioned relative to their strategic
asset allocation. The repricing of risk
assets creates an opportunity without
having to reinvent the process or be
overly creative.
One must be careful
on th
the search for yield,
though. Certain
tho
sectors have higher
sec
exposure to the crisis,
exp
aand will take longer
to recover.
COVID-19
B R IE F I N G

Stay connected.
Get FREE COVID-19 updates from reactionsnet.com
Visit the COVID-19 page to see the latest updates & whitepapers

Sign up
now

How will your business be affected?

Reactions’ editorial staff deliver unique analysis and insight on
how the pandemic will continue to impact the re/insurance industry.

www.reactionsnet.com
52 Guggenheim Investments
Fixed-income crisis
management
As the coronavirus crisis spreads, insurance companies need experienced active fixed-
income managers to mitigate risk and seek out opportunity. By Anne B. Walsh JD CFA,
Chief Investment Officer–Fixed Income, Guggenheim Investments
U
ntil the coronavirus outbreak,
it seemed the Federal Reserve
(Fed) had successfully delayed
the recession and markets were setting
up for another year of growth. But
it is evident that the spread of the
coronavirus is far more severe than
just a passing shock, and we are now
likely in a global recession that could
last for several quarters.
In 2019, the economy was well into
the 10th year of its record-breaking
expansion, but there were many red
flags for those active managers paying
attention. Our Macroeconomic and
Investment Research Group was
developing and refining its recession
forecasting tools and calling for a turn
in the business cycle by early 2020
absent any intervention from the Fed.
Debt levels and leverage ratios in
corporate America were rising, thanks
to the extended period of easy money
and low rates. The investment-grade
sector was already dominated by BBB
securities that would be vulnerable to a
downgrade in an economic slowdown.
Meanwhile, our fixed-income sector
teams were observing the tightening
of spreads across most sectors, to the
kinds of levels that had not been seen
since before the financial crisis. The
intensity of discussion at our portfolio
strategy meetings revolved around
risks in the markets that were not
being reflected in securities pricing.
For several quarters, we had been
upgrading credit quality, reducing
spread duration, and building
liquidity.
As long-term investors, we
understood that our conservative
portfolio decisions may contribute to
a short period of underperformance
relative to other strategies that took on
more credit risk or spread duration.
May 2020
Even after the Fed executed three mid-
cycle rate cuts to extend the expansion,
our asset allocation strategy did not
materially change. Our portfolio
managers continued to upgrade the
credit quality of our portfolios and
maintain liquidity buffers, even as
spreads got tighter. We knew that any
kind of exogenous event could pop
this “everything bubble.” It could have
been a trade war, an oil shock, a rash
of downgrades.
While a global pandemic was not on
anyone’s radar screen as little as four
months ago, as active fixed-income
managers the portfolios we manage
were already prepared for exactly
the kind of market consequences it
has precipitated – a collapse in risk
asset prices, spread widening, huge
volatility, and a rising number of
attractive investment opportunities
for investors with dry powder. Now
 Guggenheim Investments 53
that our views have been validated
and the market break is occurring,
this strategy has paid off with strong
absolute and relative performance.
Not only were our clients able to
avoid many of the negative effects of
the recent market dislocation, but
our decision has also positioned us to
take advantage of opportunities that
are beginning to reveal themselves. A
passive or index-constrained strategy
will not have the same ability to
mitigate risk.
I believe many insurance portfolio
managers also remain highly
vulnerable to the perilous level of
BBB-equivalent NAIC-2 holdings
held in their portfolios. We have
already observed that the number
of idiosyncratic defaults in high-
yield bonds and bank loans had
been increasing, but now the data
are starting to confirm a credit
deterioration story that is more
widespread.
Insurance portfolio managers should
expect more of the same going forward
as scores of (barely) investment-grade
companies get downgraded and
flood the high-yield market as fallen
angels. Investment-grade investors,
especially insurance companies, must
contend with the downgrade risk
of BBBs hanging over the market
like the Sword of Damocles. Nearly
50% of the investment-grade market
is BBB, up from 35% in 2007.
Bloomberg data show the cohort
of BBB-rated corporate debt in
broadly followed investment-grade industry – as compared to $600bn exist across most industries – energy,
corporate benchmarks has more than in 2006 – comprises 29.4% of the tech, healthcare, materials – leaving
quadrupled in size over that period, insurance industry bond portfolios, up very few places to hide. Given the
from $800bn to $3.3trn. For context, from 19.4% in 2006. quality of today’s cohort, we expect 15–
U.S. after-tax corporate profits are Now faced with the economic 20% of BBBs could get downgraded
only 1.3 times bigger than in 2007. fallout from the COVID-19 outbreak, to high yield over the next 12 months.
More specifically, about 8% of the many companies just barely hanging This equates to $500bn–$660bn
investment-grade market was BBB- in on under the weight of the debt and would be the largest fallen angel
2007, just one notch above high yield. burden are coming under potentially volume on record over such a short
As of 17 April, 2020, that share is 13%. unbearable stress. Based on historical period of time. Quite simply, it would
The insurance industry in general averages, 11% of BBB corporate swamp the high yield market.
has participated in this ongoing shift. debt has been downgraded to high In February 2020, markets
While the industry has stayed more yield over a five-year period. As of previewed the negative impact of a
selective than the index, insurance 17 April, 2020, however, 22% of the large debt-laden investment-grade
portfolios have experienced a companies in the Bloomberg Barclays company getting downgraded to high
110% increase in NAIC 2 holdings Investment-Grade Corporate Bond yield. Kraft Heinz (KHC), a well-
(equivalent to BBB) since 2006, on index already have leverage multiples known household brand with a market
only 38% growth in overall bond that are consistent with a high-yield cap of over $30bn, saw its corporate
holdings. The $1.3trn in NAIC 2 rating (including some A-rated bond rating slashed from BBB- to BB+
securities held by the U.S. insurance companies). BBBs with high leverage by both S&P and Fitch in one day.

May 2020
54 Guggenheim Investments
The downgrade made 19 KHC bonds
totalling $22bn in total outstanding
ineligible for the most broadly
followed investment-grade corporate
bond index benchmarks. On average,
KHC’s bonds fell 6.5 percentage points
of par over the course of two days
around the downgrade, but the longer
maturity 20+ year bonds, those less
likely to find a natural home among
high-yield investors, fell 11 percentage
points of par. The price loss could
have been worse if the downgrade
had occurred against a more volatile
market backdrop, or if multiple large
downgrades were happening over a
short period of time.
Since KHC’s downgrades, several
other large investment-grade issuers
have been downgraded to high yield,
including Occidental Petroleum (Oxy)
and Ford Motor Credit Co (Ford).
Oxy’s 6.2% coupon 3.15.2040 maturity
bond, which traded at a price of over
120% of par at the beginning of the
year, as of 17 April, 2020, trades
around 67% of par. Ford’s 4.75%
coupon 1.15.2043 maturity bond
traded at an average price around 90%
of par at the beginning of the year, now
it trades around 70% of par. Through
20 April, over $140bn of investment-
grade corporate bonds have been
downgraded to high-yield.
This analysis portends major
problems for the U.S. insurance
industry and its holdings of $213bn
in below investment-grade securities
(BIG), or 5% of their bond portfolio,
served by experienced active fixed-
income managers, not so much for
their skill in seeking out compelling
yield opportunities at this point, but
for their ability to mitigate risk.
The Fed has been trying to do
virtually everything in its power in a
time of crisis. Most notably, its plan
to buy high-yield debt and provide
financing to companies, which it
announced 9 April, resulted in credit
spreads tightening dramatically.
The market may like the Fed’s
actions, but Fed purchases cannot turn
bad debt into good debt. A buyer who
is not careful can mistake Fed liquidity
for credit strength and pay the price
down the road when the downgrades
start in earnest.
The Fed’s strong response has
as of 31 December, 2019. In the prior caused a bounce in values after
recession, insurers’ BIG holdings the sharp sell-off in risk assets, so
increased $100bn to 7.5%, up from insurance portfolios – especially
4.7% of the bond portfolio. In 2002, those that are overweight NAIC-2
the BIG position reached 7.2% of assets – can sell into strength. Fixed-
the portfolio. Given the current income markets remain vulnerable
composition of the portfolios and the to further spread widening as the
depth of the crisis, BIG holdings could downgrades start to mount. As active
approach and even breach the 10% managers, we believe that deploying
level. This would erode the capital risk mitigation strategies today will
ratios of insurers and potentially lead position our insurance clients to pick
to mass downgrades akin to the prior up undervalued credits during more
recession. opportune times. Better to sell when
Ultimately, we will reach a tipping you can rather than when you must.
point when investors will awake
to the rising tide of defaults and
downgrades. The timing is hard
to predict, but insurers should Anne Walsh
not allow themselves to be lulled Chief Investment Officer,
into complacency. We believe that Fixed Income,
insurance portfolio managers are best Guggenheim Investments
Important notices and disclosures
Investing involves risk, including the possible loss of principal. Investments in fixed-income
instruments are subject to the possibility that interest rates could rise, causing their values to decline.
High yield and unrated debt securities are at a greater risk of default than investment grade bonds and
may be less liquid, which may increase volatility.
This material is distributed or presented for informational or educational purposes only and should
not be considered a recommendation of any particular security, strategy or investment product, or
as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be
relied upon for or in connection with the making of investment decisions, and does not constitute a
solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and
should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax
and/or legal professional regarding your specific situation.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners,
LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward
looking statements, estimates, and certain information contained herein are based upon proprietary
and non-proprietary research and other sources. Information contained herein has been obtained from
sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of
future results. There is neither representation nor warranty as to the current accuracy of, nor liability
for, decisions based on such information.
©2020, Guggenheim Partners, LLC. No part of this article may be reproduced in any form, or
referred to in any other publication, without express written permission of Guggenheim Partners, LLC.
May 2020
 North America
Insurance Asset
Management Conference
Rescheduled for September – watch this space!
The Harvard Club, New York

Investment Outlook – Top global and

domestic concerns for insurance CIOs in 2020
The Great Debate: Outsourcing vs In-house
Investments
Allocation Preferences and Best Ideas
The Popular Choice: Private Equity
Are US insurers taking ESG into account?
– Is North America catching up on ESG?
Insurer ETF Usage

Our expert panellists will discuss these and other questions at the conference.
To register go to: assetmanagement2020.reactionsnet.com

For speaking and sponsorship opportunities, please contact: gpandzic@euromoneyny.com

For registrations, please email: elizabeth.wu@euromoneyplc.com
Co-hosts

www.reactionsnet.com
56 CIOs in focus

Securing assets in
a dangerous time
The pandemic has been perilous for financial markets but has not been without
opportunities, say the CIOs of Sompo International and Sun Life Financial.
By Shawn Moynihan, Editor-in-Chief

T
he first weeks of the COVID-19
pandemic played havoc on the
global financial markets like no
chief investment officer has seen since
the days of the Great Recession.
In March, as the threat of the
coronavirus became acute, global
equity markets plunged when entire
economies became stalled while
governments tried to contain the
spread of the pandemic. One of the
longest and strongest bull markets
in U.S. history came to an end on
March 12 when the U.S. stock market
dropped by more than 20% from its
most recent peak in February.
By the end of Q1, the Dow Jones
stock market index had logged a more
than 2,000-point drop in a single
day – the biggest in its history – before
falling more than 10,000 points.
As of this writing, the S&P 500
is currently up about 25% from its
closing low on March 23, after falling
as much as 34% from its February
high – and many CIOs are still wary
of what impact a global recession will
have on the assets they manage.
Mark Silverstein, Chief Investment
Officer for Sompo International, is
among those attempting to get their
arms around how their portfolios will
perform in the current environment
– and chart a course through
uncharted waters.
“We continually assess the risk
exposure of our portfolio,” says
Silverstein. “Over the past few months,
we have adapted our analysis to
include two additional elements,
first and foremost, understanding
COVID-19 and its impact on the
economy, and second, assessing our
portfolio to determine which parts
may be impacted by the economic and
market forces related to COVID-19.”
CIO Randy Brown says Sun Life
Financial has done work to create a
base case and stressed macro view,
then applied that top-down world
view onto its portfolio. “At the same
time, each analyst is reviewing
their exposures from a bottoms-up
perspective,” he notes. “We are then
aggregating the results to estimate
the impact to the portfolio. We are
reviewing the impacts to credit
ratings, capital, and liquidity so we
can see how that fits with the broader
corporate exposures.”
Both CIOs said they found
opportunities to take advantage of
during market dislocations, which
offered something of a silver lining.
“We have taken advantage of the
market dislocation to add exposures
to high-quality companies at very
attractive long-term spreads,” says
Brown. “We have made private loans
and issued commercial mortgages
on strong properties and companies
with well-structured covenants and
collateral. Given our longer-term
perspective on our assets, being
a liquidity provider in periods of
dislocation pays well.”
Adds Silverstein, “We always
consider opportunities on a risk
adjusted basis and, given liquidity
conditions over the past month, the
best opportunities so far have been in
high-quality credit assets and equities.
As more time passes, we expect there
to be significant corporate stress,
which will likely lead to some credit
opportunities.”
Market volatility driven by the
impact of the coronavirus has brought
with it more scrutiny by regulators
on insurers and financial services
companies alike. When asked whether
their interactions with regulators
had increased in recent weeks, both

“ We have taken advantage of the market dislocation

to add exposures to high-quality companies at very
attractive long-term spreads. We have made private
loans and issued commercial mortgages on strong
properties and companies with well-structured
covenants and collateral. Given our longer-term
perspective on our assets, being a liquidity provider
in periods of dislocation pays well.”
Randy Brown, Sun Life Financial

May 2020
 CIOs in focus 57
Brown and Silverstein answered in
the affirmative.
“We have received and responded
to inquiries from a number of
regulators who are checking in on the
companies they regulate to determine
if there should be concerns about
asset strength,” says Silverstein. “Our
investment portfolio performance
has weathered this storm well. Our
liquidity, capital position and solvency
remain very strong and we continue to
make decisions that support our goals.”
In terms of U.S. GDP for the
remainder of the year, Silverstein says,
“the near term looks bleak compared
to anything we have experienced in
our careers. We concur with the view
of leading banks about the economic
impact for 2020.
“However, effective COVID-19
testing and treatment could lead to
a relatively rapid recovery compared
to normal recoveries seen in a typical disruptions to any of our core services, Brown identified some structural
recession,” he adds. “Normally, a including claims – while keeping our changes that might be seen coming,
recovery requires a lot of economic staff safe. post-pandemic.
healing. In this case, if the pandemic is “The nature of work could really
tackled, then the economy can pick up change off the back of this,” he adds.
where it left off – although the longer “We have seen that work-from-home
the delay, the harder the recovery may works well, so I foresee more agile
be due to the interim damage caused.” work environments in the future.
Still, all is not gloom and doom Additionally, the role of governments
– especially from an operational has again changed, and I am not
perspective. Both Silverstein and clear how we get that genie back in
Brown have been pleasantly surprised the bottle. Deficits will be massive, so
by their teams’ ability to continue to paying them down will be painful.”
perform efficiently under some unique “We share the view that it will take
circumstances. time for the global economy to heal
Operating remotely “has worked and return to robust conditions,” adds
quite well, better than I ever could Silverstein. “I believe that hinges on
have imagined,” Brown says. “We have

been fully functional in buying and
settling trades, managing portfolios,
risk, liquidity, and information flow
to the many internal and external
interested parties.
“The only issue I have seen is in any
person’s home bandwidth, given the
heavy demand on the ’net as we are all
home,” he jokes.
At Sompo, “almost immediately, we
started daily video team meetings
– a combination of catching up
on business activities and equally
important casual discussion to keep
our bonds strong and support each
other,” Silverstein relates. “Overall,
our remote capabilities have enabled
us to operate at full strength, with no
“
Given liquidity conditions over the past month, the
best opportunities so far have been in high-quality
credit assets and equities. As more time passes, we
expect there to be significant corporate stress, which
will likely lead to some credit opportunities.”
Mark Silverstein, Sompo International
“Everyone on my team loves the new how persistent COVID-19 is and how
commute and the ‘bring your dog to effective testing and treatments are.
work’ policy,” he adds. “That said, this “Until then, certain industries will be
is a stressful time for everyone, both particularly hurt,” he says. “In the long
personally and professionally. We are run, financial stress in the short term
all very grateful that we are healthy will likely lead to greater dominance
and able to work remotely as many by larger companies over their
others are less fortunate.” respective industries.”

May 2020
58 CIOs in focus

Adapting to thought to cause a deep global recession,

there are varying opinions on how long
the subsequent recovery will take, and

investment shock Ye thinks that in general it is difficult to

link one event with structural changes.
As a group, however, Allianz
currently estimates that global GDP
Allianz UK CIO Ying Ye discusses where several long-term is set to drop by 3% in 2020 following
opportunities may lie. the financial devastation caused by
the pandemic. In the U.S. the group
By Mark Richardson, London Editor estimates GDP will drop by 2%, and in
the UK that GDP will drop by 8%.

I
n these uncertain times,
investors around the world are
having to make decisions based
on circumstances they’ve never
experienced.
The dramatic fall in financial
markets around the world at the end
of February and start of March had a
profound effect on re/insurers’ asset
bases, and after a minor recovery at
the end of March in response to state
aid packages, markets have stabilised
somewhat in April.
However, due to the large list of
unknowns surrounding the virus,
including how long it will remain and
how restrictive social rules will be in
the climb out of lockdown measures,
further market falls cannot be ruled out.
Investors remain wary of volatility,
and in these conditions Allianz UK
Chief Investment Officer Ying Ye says
the business considers investment-
grade credit to be the most attractive
area to place one’s bets.
“Despite the recent recovery,
valuations remain historically high,”
she tells Reactions. “Given the shock
on both the demand and supply side,
it is apparent that the fundamentals
will be affected for investment-
ssuers amid the drop in
grade issuers
mic activity.
economic
“However,
ever, we consider the
default risk to be remote
and the downgrade risk is
says Allianz takes a long-term view.
She says that investment-grade
credit may be a good near-term entry
point, but in the long run she thinks
that emerging market sovereigns offer
attractive return prospects.
“Emerging market issuers have been
hit hard by both the coronavirus and
the oil price plunge,” she notes. “The
recovery will take some time, but the
liquidity squeeze driven by the risk-off
momentum pushed up spreads and
could present a good entry point,
provided that investors can bear near-
term volatility.”
Regulators, too, have had their own
challenges in protecting the sector as
a whole, and protecting customers
from the risk of re/insurers becoming
insolvent.
With the full extent of the damage to
the asset side of re/insurers’ balance
sheets uncertain until the volatility
fully subsides, keeping the lines of
communication open with all market
participants is key.
“Regulators have been asking more
about insurers’ liquidity positions,
which is understandable given the
importance – particularly in a time of
crisis like this – of being able to
make payments to customers
on time,” Ye adds.
While the COVID-19
outbreak is widely
The group’s base case is a recession
followed by a U-shaped recovery,
with a few negative quarters, and a
subsequent recovery.
Outside of navigating the financial
impacts of COVID-19, Ye has also had
to manage the operational challenges
of having her people work remotely.
Adapting to working in isolation has
its difficulties, she says, but adds that
her team has adapted to the change
very quickly.
She says that Allianz UK has a well-
established business continuity plan
and comprehensive 24/7 IT support,
which she describes as having been
“invaluable”.
“Most of our meetings are held via
Webex. My team can even access the
key finance and accounting systems
remotely now, which would not have
been possible a year ago,” Ye adds.
However, with the change in working
arrangements, she explains there have
also been operational tasks that have
proved harder away from the office
and which require greater preparation
than before the pandemic struck.
“There have been a few challenges,
of course,” she says. “For instance,
signing off on investments and getting
transactions executed can be trickier
when undertaken remotely. It has
taken more advanced planning to get
things done.”

“
manageable.
eable. The major Emerging market issuers have been hit hard
central banks’ purchase
programme
mme is providing
by both the coronavirus and the oil price
further technical support.” plunge. The recovery will take some time,
Fallingg share prices have left but the liquidity squeeze driven by the risk-off
many listed
sted companies
momentum pushed up spreads and could
more attractively
ttractively
priced for investors present a good entry point, provided that
hase shares,
to purchase investors can bear near-term volatility.”
but when en looking Ying Ye, Allianz UK
at opportunities,
rtunities, Ye

May 2020
ALTERNATIVES MULTI-ASSET QUANTITATIVE ACTIVE EQUITIES FIXED INCOME REAL ESTATE PRIVATE MARKETS

We see more in the

challenges insurers face.
Global insurance solutions
From innovative investment solutions to comprehensive risk reporting, Aberdeen
Standard Investments is chosen by insurers worldwide to help them deliver on their
commitments. Discover how we can help your business thrive in challenging times.
Contact your local Aberdeen Standard Investments insurance team at
aberdeenstandard.com

ΖQWKH8QLWHG6WDWHV$EHUGHHQ6WDQGDUGΖQYHVWPHQWVLVWKHPDUNHWLQJQDPHIRUWKHIROORZLQJDɝ
OLDWHGUHJLVWHUHGLQYHVWPHQWDGYLVHUV
Aberdeen Standard Investments Inc., Aberdeen Asset Managers Ltd., Aberdeen Standard Investments Australia Ltd., Aberdeen Standard
Investments (Asia) Ltd., Aberdeen Capital Management LLC, Aberdeen Standard Investments ETFs Advisors LLC and Standard Life
Investments (Corporate Funds) Ltd.
60 ILS market
How COVID-19 might
affect ILS take-up
The way investors responded previously in uncertain times may provide a view of what’s to come.
By Mark Richardson, London Editor
T
he ILS market has been around
for more than two decades,
but it was the financial crisis
of 2008-09 when the sector was truly
embraced by investors. Keen to escape
the trappings of another downturn in
traditional financial markets, investors
turned to ILS, and around $70bn
entered the market between 2011 and
2016 – attracted by returns uncorrelated
to the bulk of their portfolios that had
suffered during the crisis.
Since then growth has been more
gradual, as major catastrophe years in
2017 and 2018 and concerns around
trapped capital reduced appetite.
However, considering the current
return to volatility in traditional
markets, parallels can be drawn
between the two crises.
Not unlike the financial crisis of
2008-09, some investors today face
liquidity issues due to portfolio losses
from assets correlated to the general
market downturn.
Greg Wojciechowski, CEO of the
Bermuda Stock Exchange, says there
may be an increase in liquidations
from ILS assets in case the market’s
uncertainty persists, mirroring what
was seen during the last financial crisis.
“What is happening now is
reminiscent of 2008 when investors
liquidated their ILS positions to raise
cash,” Wojciechowski tells Reactions.
“Then, as now, there are investors with
the capital and appetite to take on
these cat bonds that have been trading
at a minor discount to fair value.”
As an asset that has retained value
better through the current market
turmoil brought by COVID-19, he
adds, ILS can serve as a source of
liquidity to non-ILS specialists.
However, the landscape in 2020 is
not quite what it was in 2008.
Pre-financial crisis and the
subsequent quantitative easing,
investors were used to risk-free rates of
3%-5% from state treasuries. Measures
to cut these rates were a key factor
in large pension funds and sovereign
wealth funds seeking yields from ILS.
With the size of the market today
significantly larger than 2008, Luca
Albertini, CEO of Leadenhall Capital,
explains that it is very unlikely that we
would see the level of uptake seen in
years past. “The ILS market has proven
its value in 2008 as well as in 2020, but
unlike 2008 a number of institutional
investors now have an allocation in ILS,
which was not the case at that time,”
he says. “As a consequence, whilst we
expect further growth, it may be at a
more gradual pace.”
May 2020
There are a number of factors that
must be considered in determining
the future growth of ILS, and at this
current moment, while uncertainty
persists around what direction
traditional markets will take,
substantial growth in the near term
seems unlikely.
Fitch Senior Director Jeff
Mohrenweiser says more ILS supply
would be required to experience the
kind of growth previously seen in the
last decade.
Q1 saw record ILS issuance of
around $5.5bn, according to Artemis.
bm, before a sudden halt in March
prompted by the coronavirus. With
20%-30% of bonds maturing in any
given year, and about $4.6bn worth
maturing in Q2 according to Willis
Re, Mohrenweiser thinks replenishing
those will take up more attention in
the near term.
Mohrenweiser says popular issuances
in recent years have been related to
mortgage insurance, with issuance
of $3bn in 2018 and $4.5bn in 2019.
He anticipates little issuance in this
class in 2020 due to the current high
unemployment rate and unknown
recovery timeline.
“We might see a slight decrease in
ILS as those contracts that are due

for maturity for the rest of the year
may not be immediately replaced,”
he adds. “However, when this pause
is over, we believe there is a healthy
pipeline of deals in the works and it
will be back to business. So, we believe
it is more caution than a change in
attractiveness.”
While Mohrenweiser thinks there
has been a “tremendous amount
of work” done on building up ILS
capacity in the last 10 years, he
describes the current uptake as the
“low-hanging fruit,” with the main
risk being property cat, where there
are established modellers and easy-to-
understand perils.
In order for there to be a new ILS
boom, he explains, a solution must
be developed to significantly reduce
the gap between economic losses and
insured losses. Alternatively, he says,
more effort is needed to make liability
lines a more attractive proposition.
“We have seen some of this ingenuity
on occasion, but it remains to be seen
if the ILS investor base is willing to
deviate too far from the property
cat space with unfamiliar risks such
as workers’ compensation, longer-
see this drop in capital as a short-term
hit. Over time, they believe capital will
return to ILS.
“In the long term, we continue to
believe that alternative capital backed
by long-term investors remains
committed to insurance risk and is here
to stay,” says Josefs. “Seeing how the ILS
market has responded in the past three
years following years of record losses
from natural catastrophes and now in
the wake of the COVID-19 outbreak,
we believe that ILS investments will
remain attractive if higher rates can be
achieved.”
ILS market 61
expect that underwriters, including
ILS asset managers, may be under
more pressure to achieve higher
returns targets on the underwriting
side during the upcoming renewals.”
In the short term, a mix of factors
including a need for liquidity, new
traditional market opportunities,
and rebalancing portfolios will
result in a reduction of ILS capital,
Wojciechowski says.
However, he expects to see more
capital seeking non-correlated asset
classes enter the ILS market from
investors like pension funds and
sovereign wealth funds with sensitivities
to volatility and low interest rates.
Wojciechowski also anticipates a
surge in popularity for pandemic
bonds, creating a range of competing
factors when assessing how ILS
markets may grow after the pandemic.
“Longer term, investors may see
an opportunity for upsizing their
allocations to the asset class to
diversify away from more correlated
risks,” he adds. “Conversely, should
investors already have a target ILS
allocation, they may need to rebalance

duration contracts with years of claim
development, or unproven models,”
he adds.
Current investor appetite to increase
ILS exposure is also questionable
due to opportunities now arising to
purchase equity in attractively priced
traded companies affected by the
market downturn.
“It is fair to say that there is a trade-
off between the lower correlated
returns of ILS investments versus
potential short-term opportunities
in other asset classes,” S&P Associate
Director Maren Josefs tells Reactions.
Along with generating liquidity
through cat bonds, Albertini says the
market shock to traditional assets would
have left many investors overweight on
their ILS allocation, requiring a need to
sell to rebalance their portfolio.
“The short-term withdrawal of
capital from some investors is expected
to reduce overall ILS capital capacity
at mid-year,” Albertini adds. “Some
new capital was ready to come in,
but the market events in March are
currently distracting them.”
However, both Josefs and Albertini
“
What is happening now is reminiscent of 2008 when
investors liquidated their ILS positions to raise cash.
Then, as now, there are investors with the capital and
appetite to take on these cat bonds that have been
trading at a minor discount to fair value.”
Greg Wojciechowski, Bermuda Stock Exchange
Albertini says the returns available their portfolios should ILS now be an
on cat bonds have increased following outsized slice of their portfolio if other
the global drop in asset values in assets have shrunk substantially.”
March, and that new issuance reflects With the ILS market having matured
a more permanent hardening of the significantly in the past few years, the
ILS market – something expected even longer-term uptake seems unlikely
before the coronavirus crisis. With an to be as great as it was post-financial
above-average year forecast for Atlantic crisis. Still, Wojciechowski says there is
wind off the back of recent years of interest from potential new investors
losses, this too should impact rates. who have a better understanding of
“Florida is a peak zone exposure for the class – but how this plays out in the
many reinsurers and a large market for long term may come down to how the
alternative capital,” Josefs says. “In view re/insurance market itself responds on
of multiyear pain and a shift in views the pricing and supply side.
of risk, both traditional and alternative “The impact on the ILS landscape in
capital have higher return targets. the coming few weeks and months will
“Add to this the impact the measures be very fluid and hard to predict while
taken to combat COVID-19 are having this pandemic continues to spread,”
on investment returns overall, and we Wojciechowski adds.

May 2020
62 LatAm market report

LatAm in 2020:
State of the market
While the Latin American insurance market may not suffer as many insured losses as in
other parts of the globe, the socioeconomic stakes are now much higher.
By Shawn Moynihan, Editor-in-Chief

W
hen it comes to
examining the Latin
American insurance
market in the wake of COVID-19,
one must distinguish between
the degree of insured loss
expected and the socioeconomic
impact the pandemic is likely to
have on the region.
On one hand, several leading
insurance executives in LatAm
do not believe that from an
insured losses standpoint, the
region would be as affected by
the pandemic as other parts
of the world on the property &
casualty side.
“In general terms, the large
number of existing products
impacted would be traditional,
so most of the losses would be
outside the scope of coverage,”
says Ismael Lopez, CEO of
Sompo Mexico. “This, coupled
with a lower level of penetration
in the small business sector, out, “Latin America is not – at
which is expected to be the least until now – a big market
most affected, could lessen the for lines of business such as
pandemic’s effect on LatAm.” Contingency or Trade & Credit
“Most business interruption that have been severely affected
wordings used in the region by the pandemic.”
require a physical damage Jose Astorqui, CEO of BMS
trigger; therefore, economic Latin America, agrees, saying
losses arising out of COVID-19 that LatAm legal firms that have
would not be covered under consulted BMS Latin America do
these standard wordings,” says not expect local regulators to force
Napoleon Montes-Amaya, insurers/reinsurers to pick up
President, Specialty Lines at claims if they are clearly excluded,
Hiscox. Furthermore, he points especially on the BI front.
“ The financial and economic turmoil
ensued by the pandemic has brought
a lot of uncertainty… It is still too early
to predict how deep the pandemic will
affect the market, but I am certain we
are at a turning point.”
Napoleon Montes-Amaya, Hiscox

May 2020

On the other hand, the
socioeconomic implications of
the coronavirus on Latin America
cannot be underestimated,
executives say – and could
create flashpoints in different
countries where populations are
being forced into dire straits as
LatAm market report
some of these subsidies, which
may lead to social uprising like
it happened in 2019 in France,
Chile and Ecuador.”
“The pandemic will definitely
generate higher unemployment,
and therefore increase poverty
(some analysts predict that more
than 30 million Latin Americans
will move from middle class
to poverty). The consequence
will be a higher risk for riots
and civil commotion,” says
Juan-Fernando Serrano,
Presidente Ejecutivo and CEO of
LatinoInsurance.
Astorqui at BMS says that
all Latin American countries
are currently suffering severe
economic difficulties, “and if the
economies do not start working
soon, there is a high possibility
of public demonstrations against
the government. These have the
potential to develop into a much
more serious situation.”
63
consulted believe that Argentina,
Chile and Peru will be the first
countries to emerge from the
crisis, “mainly because they are
big food (meat, seafood, fruit)
and wine exporters and have
higher resilience indices,” says
Astorqui. “But, on the other hand,
their falling revenues – mainly
from metal and mineral exports
to China, as prices declined by
20% or more during the past
month – are squeezing their
ability to service external debt.”
Thus, while the effects are not
going to be uniform across all of
LatAm, Astorqui believes every
country in the region is going to
be severely impacted.
At the same time, he notes,
reinsurers “have been increasing
rates in almost every line of
business since the beginning of
2020, after a poor 2019 ended a
very long soft-market period. And
then the coronavirus happened.

lockdowns are enforced to curb
the virus’ spread.
“I would be lying if I told you
that we are not worried about
socioeconomic stability in
Latin America,” says Montes-
Amaya. The most immediate
threat, he says, is the potential
breakdown of the supply chain
of basic goods, including food,
as a result of the government
lockdowns. “Countries that are
heavily dependent on importing
goods will obviously be at higher
risk than those that are self-
sufficient,” he notes.
“Then, we have the fiscal crisis
that will follow in a three-
to-five-year time frame,” he
continues. “Governments are
being forced to put together aid
packages in order to prevent
their economies from collapsing,
and more importantly, keeping
their people from starving.
However, a lot of the Latin
American governments were
already in a precarious fiscal
position,” he adds. “This means
that in three to five years, they
will have to make difficult
decisions about continuing
“
We are already seeing that many
original insureds are not going to be
able to afford the requested premium
increases, which is going to put a lot of
pressure on all the members of the re/
insurance chain: insureds, insurance
companies, brokers and reinsurers.”
Jose Astorqui, BMS Latin America
Additionally, the drop in oil “We are already seeing that
prices is going to hurt those many original insureds are not
economies that are more going to be able to afford the
dependent on oil sales like requested premium increases,
Mexico, Colombia or Ecuador. which is going to put a lot of
Currencies such as the Brazilian pressure on all the members
real and the Mexican peso of the re/insurance chain:
have depreciated by about a insureds, insurance companies,
third this year so far, Astorqui brokers and reinsurers,” he adds.
points out. The population of Joe Smith, CEO of Capsicum
Latin America is younger than Re Latin America, says that
the average Western country, governments are taking
he says, “but less healthy and actions to keep the economies
therefore more vulnerable. stimulated, but the real impact
Mexico and Brazil, the two to the market will be determined
largest economies, reacted very by how long business remains
late to the pandemic, while Peru, in lockdown and regional and
Argentina and Chile reacted global recessionary forces.
swiftly,” he adds. “During the term of the
Some of the experts BMS has pandemic lockdown, political

May 2020
64 LatAm market report
risk exposure is lowered,” says Smith.
“However, a prolonged lockdown
and economic strife may result in
heightened political risk exposure in
the medium term.”
As economies suffer, insurers will
likewise feel the pinch. “It will definitely
be a very difficult year, since in all the
economies the majority of businesses
will have revenues of eight to nine
months and expenses of 12 months,”
adds Serrano. His informal inquiries
to insurance top executives, Serrano
says, reveal that they are predicting a
reduction of revenues of 10%-20% and
a drop in profits of more than 50%.
Servicing remotely
Re/insurers are engaging more
virtually with clients than in person at
the moment – which is a whole new
ballgame, given the importance of in-
person relationship building when it
comes to doing business in LatAm.
A main challenge to engaging new
business in a virtual sales environment
“is getting clients accustomed to this
type of sales process, since face-to-face
meetings have been the norm,” says
Lopez at Sompo Mexico.
“It is essential to have a professional
sales team with a higher level
of preparation to manage the
relationship in this environment,”
he adds. “Projecting professionalism
and credibility, building rapport and
effectively using the technology will
be key factors to success. Another
challenge could be establishing a
robust engagement platform as from
country to country, there will be some
technology limitations in the region.”
“I have been pleasantly surprised
by the resilience of the market in
this regard,” says Montes-Amaya.
Brokers, he notes, are now organising
“virtual road-shows” using online
video platforms, “so we don’t lose that
human element when trading.
“Obviously, this will never replace
face-to-face interaction, but in times of
crisis like the one we are experiencing, it
is a good compromise,” he adds. “I think
that in these difficult times we have to
make sure that the urge for automation
does not lead to dehumanisation.”
“The fact is that we are all confined
at home – so we all have the
same difficulties, making us more
sympathetic and flexible to this remote faster and deeper communications
approach,” says Astorqui. with brokers and buyers – from
Serrano points out that the main submitting proposals to managing
impediment to virtual engagement claims – are reaping the benefits of
in Latin America, is access to the those investments.”
Internet. In LatAm, he notes, close to Latin American insurance buying
65% of the population (on average) patterns are still largely traditional,
has Internet access, while in the based mostly on a network of agents,
U.S. and Europe that number is over says Astorqui. However, he believes
90%. That, he says, will make it more the current crisis will accelerate the
difficult to obtain new customers. remote acquisition of insurance. “We
“ Insurance carriers will concentrate
on retaining/renewing their
portfolios, meaning that there
will be fierce competition to keep
customers, pushing prices down.”
Juan-Fernando Serrano, LatinoInsurance
“Insurance carriers will concentrate do need to remember that computer
on retaining/renewing their portfolios, and Internet access is not as widely
meaning that there will be fierce accessible in our region as in First
competition to keep customers, World countries, this being one of the
pushing prices down,” he projects. main entry barriers for InsurTech. So
“Additionally, the renewed policies will this transition will be slow,” he says.
be paid in more instalments, affecting “Before this crisis hit us, most of
the liquidity and solvency of carriers – Latin America’s insurance market
which consciously prefer this scenario was steadily growing in premium
than losing their customers.” volume in their respective currencies
Maintaining relationships with despite the economic instability,”
clients in troubled times may prove Astorqui adds. The consolidated net
to be critical in retaining business. result of the region’s insurance market
Astorqui believes that especially on amounted to $12.06bn in 2018, he
large fac accounts, both government notes, representing growth of 35.8%
and private, insureds are now going to over the previous year.
be under enormous pressure to reduce “Many insurance companies were
cost. “Every risk manager or CFO in ready to deploy investment capital
LatAm is going to tender their P&C for their InsurTech transformation,”
program, inviting several brokers and/or he adds. “We believe this investment
insurance companies to quote,” he says. will now be put on hold in most of the
Alexander Montoya, President, cases to reallocate the funds to more
U.S., Bermuda and Latin America at pressuring needs.”
Liberty Specialty Markets, says that If one thing is certain, it is that the
while client relationships remain effects of the pandemic will be felt
paramount, how those relationships on Latin America and its insurance
are built reflects today’s realities. market for years to come.
“Across Latin America – and the “The financial and economic turmoil
world – insurance brokers, buyers and ensued by the pandemic has brought
carriers are embracing technology as a a lot of uncertainty across industries,
way to continue to virtually foster and and the Latin American insurance
grow the close relationships necessary market is not the exception,” says
to develop and manage effective Montes-Amaya. “It is still too early to
commercial insurance programs,” he predict how deep the pandemic will
says. “Carriers that have continually affect the market, but I am certain we
invested in technology to facilitate are at a turning point.”
May 2020

Building the future
The need for U.S. infrastructure investment is now greater than ever. By Greg Schiffer
I
t’s still too early to know what
the legacy impacts of COVID-19
will be. But few would argue the
world feels changed as we deal with
the challenges the pandemic and its
aftermath will present.
And yet, while we make peace with
social distancing while fearing the next
pandemic, many of the societal issues
we faced before the crisis are still here.
That includes the need for better U.S.
infrastructure, long talked about but
not executed on.
The statistics around a need for more
investment in this area are sobering,
especially when you consider what they
looked like before a sudden shock to
the U.S. economy. We were already on
pace to under-invest in infrastructure
by an estimated $2trn through the
midway point of this decade, according
to the American Society of Civil
Engineers (ASCE). And that pre-dates
a U.S. recession that may be one of the
deepest on record, if one of the shortest,
according to the Swiss Re Institute.
That underinvestment is felt
everywhere, cutting across all
socioeconomic backgrounds. More
than 850 water mains break every day
across North America, according to
ASCE data, an increase of 27% from
2014. Nearly half of North America’s
major roads are in poor or mediocre
condition, and 38% of the nation’s
bridges need repair, replacement or
significant rehabilitation.
These road conditions cost drivers
nearly $129bn per year on unexpected
repairs and added costs. Lean local
budgets, which face the prospect
of more belt-tightening with an
economic downturn, threaten to pile
more burden onto drivers – many of
whom commute long distances for
work to avoid high housing expenses
in places like New York, Los Angeles
and Washington, D.C.
A possible silver lining in all this is
that the pandemic may represent a new
chance for lawmakers to come together
on an issue with broad bipartisan
support. Historically, as the U.S. has
invested in and grown its infrastructure
system – in projects like the
transcontinental railroad, the Hoover
Dam and the Interstate Highway
System – the country’s economy and
quality of life also improved, according
to the ACSE. So, if not now, when?
It’s unclear what Washington
lawmakers will propose with
infrastructure, but the private sector
will have a critical role – and that
includes insurers. Perhaps not thought
of much (or at all), every crane in
the skyline depends upon insurance
to secure the construction project.
Reliable, competent insurance is a key
enabler for infrastructure investment,
bringing both the public and private
sector together. It does this by not only
providing reliable insurance backed by
financial strength and risk expertise,
but also by delivering solutions that
drive project success.
Insurers have always been the canary
in the coal mine with infrastructure
investment because we follow the
market risks. To that end, the modern
world is increasingly defined by
sprawling megacities and shrinking
coastlines due to rising sea levels
(but still very much populated by
homeowners).
Growing urban populations require
May 2020
65
substantial investment in infrastructure
to enable sustainable growth. And yet,
there is a need to invest more than
$60trn in global infrastructure between
now and 2035. Despite climate-change
risk, homeowners still build houses
where they are threatened by flooding.
This trend poses significant challenges,
like how to curb beach erosion, limit
damage to property (let alone insure it),
and develop stronger building codes.
Beyond project construction and
engineering, responding to these
challenges requires new investments
in renewable energy production,
transportation (including that of
marine and aviation), logistics, and
trade enablement. Swiss Re has
responded by expanding coverage in
these areas by 15% in 2019.
China will soon invest in new
infrastructure as part of fiscal stimulus
to mitigate economic slowdown and
boost growth. In absolute terms,
there will be a near-fivefold increase
in investment ($1.8trn) in new
infrastructure spanning this decade,
according to the Swiss Re Institute.
There is an opportunity to do the
same here. I have every confidence
we will emerge through these difficult
times stronger as a society, as we have
so many times before. But one of the
ways we can become stronger is by
having the public and private sector
help tackle the U.S. infrastructure need.
Greg Schiffer
Co-Head of Special Lines/
Global Head of Trade and
Infrastructure, Swiss Re
66 Middle East report
Unexpected
headwinds
hit MENA
A combination of COVID-19 and collapsing oil prices beset the
Middle East insurance market.
By Marc Jones, Associate Editor
P
etrodollars and the
Middle East have been
linked together for
almost six decades, as the area
benefits from the reserves
beneath the sands that have
brought riches to so many
companies.
However, in recent months
the region has been hit by
two events in particular
that have slammed on the
economic brakes. The first is
the COVID-19 pandemic. The
second one is the virtual collapse
in the price of oil.
The former has also impacted
the latter. The lockdowns put in
place by governments all over
the world, including the Middle
East, has led to fewer people
travelling than at any point in
recent history – and far less
fuel consumption than usual.
Demand for oil has dropped
significantly, depressing the
price; Saudi Arabia and Russia
have disagreed about production
quotas and have engaged in a
price war.
All told, the Middle East has
entered into uncharted waters,
with the region’s insurance
market also affected – like many
others – by the coronavirus.
Previous picture
Jessica Botelho-Young, Senior
Financial Analyst at AM Best,
says that a characteristic of
Middle East insurers is that
they tend to take more asset risk
than they take insurance risk. In
mature markets, AM Best tends
to see capital requirements
for P&C insurers driven by
underwriting risk, whereas
in the Middle East and North
Africa (MENA) region, capital
requirements tend to be driven
by asset risk.
As a result, she says that
May 2020
insurers tend to have higher
risk investment portfolios that
typically consist of significant
holdings in local real estate
and equities. Additionally,
insurers tend to heavily depend
on reinsurance to write many
commercial lines, which leaves
portfolios highly concentrated in
motor and medical insurance on
a net basis.
According to Botelho-
Young, over the past five years
regulatory requirements in
Saudi Arabia, the United
Arab Emirates (UAE), and
Qatar have encouraged
companies to implement more
robust governance and risk
management frameworks.
As she puts it, in terms of
catastrophe exposure this is
considered relatively low in
the Gulf Cooperation Council,
although AM Best has noted
recent increases in flood event-
related losses. As a result,
given the stronger regulatory
environments, insurers are
generally well-capitalised and
capable of enduring catastrophe
stress scenarios. However,

insurers are vulnerable to shocks
in investment markets as seen
since the outbreak of COVID-19.
“Insurance markets in the
UAE and Saudi Arabia, the two
largest markets in the GCC, are
highly competitive with a large
number of insurers, relative to
the limited amount of premium,
in each market,” says Botelho-
Young. “In recent years, this has
led to fierce levels of price-based
competition.
“Qatar’s insurance market
entered 2020 with tailwinds
stemming from increased
infrastructure spending by
the government in the run
up to FIFA World Cup 2022
and the introduction of new
products focussed on SMEs,”
she adds. “The Qatari market
is less fragmented than those
of the UAE and Saudi Arabia
with a reasonable degree of
cooperation amongst insurers,
particularly for government
business which tends to be
shared between the larger
insurers.”
Even in the pre-COVID era,
the growth rates in most of the
Middle East report
Middle East insurance markets
have been subdued over the last
few years, primarily due to the
slowdown in the economy and
comparatively lower oil prices,
says Sanjay Jain, Partner –
Financial Services and Middle
East Insurance Leader at
PricewaterhouseCoopers (PwC).
“On the demand side, there have
been some pockets of growth,
e.g. introduction of mandatory
health insurance in Dubai in
2015-2017 or unified motor
policy launch in UAE in 2017.
On the supply side, the industry
continued to face the issue of
fragmentation and lack of scale,
resulting in ever-increasing
challenges around profitability.”
According to a Middle East
and North Africa Insurance
Market Report issued by Marsh
in 2019, as with organisations
globally, those in the MENA
region were previously feeling
the impact of transitioning
insurance markets. Marsh said
that while competition among
insurers remains strong and
capacity is generally available,
many insurers are looking to
increase pricing in various
product lines.
The Marsh report stated
that in the MENA region
the property market had
entered a two-tier phase,
with rate increases generally
seen by companies requiring
international reinsurance
capacity and flat rates generally
exhibited by companies whose
capacity requirements can be
satisfied by local insurers.
According to Marsh the
transition was felt particularly
in some of the specialty classes,
including construction, power
and utilities, and downstream
energy, where market capacity
and appetite had fundamentally
shifted. Major losses in the
region, coupled with global
catastrophe losses in 2017 and
2018, led to changes in many
insurers’ strategies, which may
include the use of more selective
risk assessments.
May 2020
67
As the Marsh report points out,
in 2018 the region witnessed
a number of significant
capacity withdrawals, driven by
shrinking premium pools and
increased major-loss activity in
the energy sector. Moreover, the
trend of re/insurers establishing
MENA offices began to reverse
in 2018. Adverse claims activity
and resultant cost-cutting
caused many companies to
close regional offices and move
underwriting authority back to
Europe or Asia.
Together, these factors changed
the market’s profile – ultimately
raising premiums and leading to
stricter underwriting discipline.
Additionally, credit issues are
a concern for some insurers,
resulting in increased scrutiny
of debt and cash flow, and the
implementation of safeguards to
ensure that premiums are paid.
To illustrate the difference
between 2019 and 2020, the
2019 Marsh report stated that
“at the same time, the Middle
East has been buoyed by
positive developments in the
last 12 months. Stable oil prices
have led to a steady increase in
government spending and large-
scale projects in many countries.
Egypt’s economy is growing
steadily – as is its insurance
market – and leadership
reforms in Saudi Arabia are
behind an improving economy
and more business-friendly
environment, thus attracting
foreign investments and leading
to ambitious new projects.
“Meanwhile, the insurance
markets in UAE, Bahrain, and
Oman continue to mature.
Companies in MENA are
increasingly looking to protect
risks, including political
violence, data-related losses,
management liability, errors
and omissions, and business
interruption.”
Unfortunately the same
cannot be said for the current
environment, as times have
changed dramatically. In 2019
the global price of oil hovered
68 Middle East report

at about $60 to $70 a barrel of Brent
crude oil and even at the start of
2020 it was still around $60 a barrel.
However, as this story was being
written oil had plummeted to around
$20 a barrel, with both countries and
companies announcing that they were
running out of room to store oil, due to
the lack of demand for it.
The current view
The collapse in the price of oil and the
impact of COVID-19 have combined
to change almost everything about the
Middle East.
PwC’s Jain thinks that it’s too early
to ascertain the tangible impact
of the recent drop in oil prices,
but that insurers will be impacted
across all lines of insurance, given
the dependence of Middle Eastern
economies on the oil-based revenues.
spending and economic activity.
Furthermore, the rollout of mandatory
medical lines in Oman and Bahrain
have been postponed.
Government spending on public
projects, particularly infrastructure
projects, is expected to be delayed until
the spread of the virus is contained. As
previously mentioned, commercial risk
is typically ceded to the international
reinsurance market, and local insurers
generally benefit from the high inward
reinsurance commissions tied to these
projects.
Trouble with cash collections has
been an ongoing feature across the
region, particularly in the UAE,
and is likely to be exacerbated by a
weakening in economic conditions.
When asked if the recent fall in
the price of oil affected the MENA
insurance market, Botelho-Young says
estate and a reduction in investment
income will negatively impact earnings
for 2020.”
AM Best has also noted that the
majority of medical policies across
the market contain explicit exclusions
from losses arising as a result of a
pandemic. In many cases, medical
costs associated with coronavirus
treatments will either be fully
or partially paid for by the local
government.
However, according Botelho-
Young, AM Best also understands
that the Dubai Health Authority is
requiring local insurers to pay these
claims despite exclusions. To date the
number of cases in Dubai has been
manageable and the rating agency
expects insurers to be able to absorb
these losses. However, if the number
of cases increases materially the rating
agency feels that this may become

“ AM Best expects the investment

portfolios of local insurers to be
affected by lower oil prices as well
as COVID-19-related financial
market volatility, as they are
weighted toward equities and
real estate.”
Jessica Botelho-Young, AM Best
And as Botelho-Young points out, that many insurers in the Middle East
the COVID-19 outbreak and ensuing will feel the effect of lower oil prices
quarantines, disruption to supply on both underwriting and assets.
chains, travel restrictions, and in Although some countries in the region
general, reduction in consumer possess more diversified economies,
spending increase the likelihood the most remain heavily reliant on oil
MENA region is headed for a recession. revenue – meaning that fluctuations
“Governments have been quick to act in the price of oil have a direct impact
both in terms of containment measures on national GDP growth. Lower oil
and fiscal stimulus packages to try prices will likely impact the fiscal
to mitigate the economic damage,” spending plans of governments in the
she points out. “Although these steps region, which is likely to translate into
will soften the economic blow, we reductions in infrastructure spending
have already noted a sharp slowdown and insurable risk.
in activity, with the International “AM Best expects the investment
Monetary Fund (IMF) forecasting a portfolios of local insurers to be
decrease in real gross domestic product affected by lower oil prices as well as
(GDP) to -3.3% for the MENA region. COVID-19-related financial market
According to Botelho-Young, the volatility, as they are weighted toward
heightened potential of a recession equities and real estate,” says Botelho-
does present some headwinds for the Young. “We expect that the fall in
market. Gross written premium is equity markets and decline in real
expected to decline during the year, estate prices will erode capital buffers.
given the sharp decline in consumer Furthermore, impairments to real
unsustainable for insurers, particularly
if reinsurers are not contractually
obligated to cover these losses.
In terms of what the post-COVID-19
landscape in the Middle East might
look like, Jain is cautiously optimistic.
He thinks that as insurers learn to
manage through the immediate
crisis and governments begin to
tentatively ease restrictions, two key
considerations will emerge.
The first is operational: how to
prepare for the return to work in this
“new normal.” Although he thinks
that this will be a new and difficult
challenge, it should be resolvable in
the near term. The other – and to Jain,
in many ways, trickier – consideration
is that Middle East insurers will need
to determine what the mid- to long-
term implications of the crisis are and
how to respond strategically.
According to Jain, the pandemic
might well prove to be a disruptive
catalyst for the insurance industry, as
the region’s insurers will have to start
thinking out of the box and challenge
the status quo. He lists consolidation,
digitalisation, the re-engineering of
operating models and new business
models built around alliances and
partnerships as some of the potential
options insurers will have to carefully
evaluate while navigating through this
difficult period to stay relevant in the
post-COVID-19 era.

May 2020

Predict. Prepare. Protect.
Protecting your property during reduced operations and extended shutdowns.
By Robert Tull, AVP, Global Risk Solutions Property Lead, QBE
B
usiness conditions such as
the COVID-19 virus may
create situations where entire
facilities, or portions thereof, may be
idled, or operations greatly reduced.
Your assets and facilities require the
same or increased levels of protection
and security to help protect your
business from loss. Idle or reduced
operations may make a building more
susceptible to loss. For example, if
a sprinkler or domestic water pipe
was to break or be maliciously shut
down, it could create water damage or
worse – the spread of an uncontrolled
fire. The loss of use due to fire, water
damage, theft or vandalism may not
only impact your facility but may also
impact nearby structures or other
profit-making units which may result
in an interruption of business.
Here are a few safeguards that
should be implemented if a facility has
reduced operations or is idle:
Site/building exterior
• Close and lock gates and fences.
• Make sure exterior lighting is on and
operational.
• Ensure no combustibles are
temporarily stored against the
building.
• Truck trailers should be locked and not
against the loading dock, if possible.
• Repair broken windows and doors.
Maintain the exterior of the facility to
prevent air and water infiltration.
• Secure exterior trash receptacles by
locking and keep at least 10 feet from
any structure.
Systems/process changes
• Maintain a minimum of 40°F in the
entire building or areas with domestic
water and sprinkler areas. Remotely
monitor building temperatures.
• Reduce or discontinue any processes
using heat or open-flame equipment.
• Shut off unneeded electrical systems
at circuit panels or switchgear where
possible.
• Close all fire doors and stairwell
doors.
• Remove or isolate ignitable liquids.
Disconnect and remove gas cylinders.
• Reduce combustible loading inside,
such as idle pallets and interior trash
receptacles.
Fire protection and security
• If your fire protection systems are
shut down or in any way impaired,
you need to contact QBE at our
Risk Solution Center and tell the
responder your company name,
location, policy number and the
nature of the impairment including
area covered and length of time the
system is expected to be impaired.
• Maintain ALL fire and sprinkler
alarms and confirm central station
monitoring is operational.
• Maintain building security, including
burglar alarms, guards, CCTV,
fencing and lighting.
• Increase security protection if the
situation warrants.
• Provide regular (a minimum of
daily) facility checks with competent
personnel completing a formalised,
recorded walk through.
• Establish an emergency response
team of trained key staff on the
operations and facility protection
May 2020
QBE 69
features including sprinklers and
domestic systems. They should be
able to respond to a facility quickly.
• Management should be cognisant
of employees who may be recently
furloughed or others with malicious
intent and provide necessary security
and response.
• Inform local police and fire
departments of your building’s
closure and any special property
protection concerns as well as access
methods to the building in case of
emergencies.
Technology available today allows
management to monitor a facility
remotely, but it should be supported
by an on-site visual inspection on a
regular basis.
Please remember, if your sprinkler
protection or other key protective
features are impaired or if you have
any questions about loss control
resources from QBE, you should
contact QBE Risk Solutions Center at
rsc@us.qbe.com or
call 888.560.2635.5.
Robert Tull
AVP, Global Risk Solutions
lutions
Property Lead, QBEE
70 Infrastructure market update

Construction conundrum
COVID-19 set to delay and mothball some projects, but price hardening will continue.
By Mark Richardson, London Editor

P
rior to entering the coronavirus
crisis, the construction
insurance sector had been
undergoing a significant hardening.
The high cost of claims associated with
the dangers of working on construction
sites – exacerbated by a shortage of
experienced workers – had driven
several carriers out of the line, unable to
turn a profit, and rates had largely been
on the rise among those who remained.
The onset of the pandemic, however,
has subsequently changed the risk
profile of these building projects.
Government-ordered responses
around the world have resulted in
construction-site shutdowns, with
return-to-work dates mostly up in
the air.
Still, Chris van Gend, Global Head of
Energy and Construction for Allianz
Global Corporate Solutions, tells
Reactions he has seen nothing in the
last few weeks to indicate the upward
pricing trend is reversing.
“Uncertainty has the effect of
pushing pricing higher at times like
these,” he explains. “We have seen the
impact of market consolidation as
some carriers had to pull back or out
of the construction class in the last 18
months and now others may be forced
to merge or reassess their offerings in
the current crisis situation.”
In part this is because while the
standard risk profile has changed,
other heightened exposures have
arisen. AGCS has been working with
clients to mitigate the risk of losses at
construction sites while in lockdown.
“Ensuring sites are adequately
protected during a shutdown is
important to prevent losses,” says van
Gend. “The potential for losses from
events such as fires, vandalism, theft
and flooding remains when sites are
idle or largely unoccupied, and can
even be exacerbated.”
Those risks will extend to when
projects restart, requiring that clients
ensure that engineering disciplines
conform to required levels.
Hardening not abating
Perhaps the biggest factor continuing
to drive market hardening in
construction is the need for pricing
adequacy to make up for years of
past losses. Paul Jansen, Managing
Director and Founder of MGA Cove
Programs, says spiralling losses in the
U.S. have been led by increasing jury
awards and associated settlements in
construction-related lawsuits.
Jansen says this trend is unlikely to
change, so even if underwriting results
improve as a result of reduced activity, it
will not reverse the need for rate hikes.
“During the last recession of 2008-
2012 the expectation was that losses
would increase as a consequence of
the downturn,” he says. “However, our
results improved during that time due
to lower construction volumes and our
focus on quality with a smaller, more
experienced workforce.
“We do not feel that a similar
outcome from this pandemic would
result in the market softening, as this
sector has needed a correction for
many years,” he adds.
Where underwriters may feel a hit
from the pandemic is on premium
income levels, in line with reduced
work and economic income. How hard
that hit will be comes down to how
long government restrictions across
the world are maintained, but the
expectation is it will hurt carriers in
certain regions more than others.
The construction sectors in Asia
and the U.S. will most be affected by
the coronavirus, van Gend believes,
with growth prospects for European
construction sectors also reduced
and many potentially struggling from
disrupted supply chains.
“In Asia, infrastructure building plans
such as the Belt and Road Initiative
may be postponed as government
spending is redirected to pandemic
containment and relief efforts,” he
says. “The North America construction
market will face job site shutdowns,
challenging macroeconomic conditions
and weakened investor confidence
due to the uncertainty over economic
recovery.”
Those economic conditions add up
to AGCS expecting a downturn in
construction premiums this year.
However, van Gend highlights that in
many countries major infrastructure
projects are continuing, along with
smaller residential construction,

“
The impact on business written in
the construction class is too early
to tell, but we are seeing a slowing
down in new projects starting and
we expect to see a delay in other
existing projects, which will result
in a reduction in premium written
for construction business in 2020.”
Paul Jansen, MGA Cove Programs
putting the anticipated reduction
in premiums in the single-digit
percentage range.
“The extent of the coronavirus
impact on the construction industry
will correlate to the duration of the
lockdowns in different countries and
also on the speed of economic recovery
of economies globally,” van Gend adds.
Andrew Clydesdale, a member of
the construction team at London
broker Miller, says the degree to

May 2020

which premium levels are affected by
COVID-19 will depend on a number of
factors. He identifies that for general
contractors there will be a reduction
in premium, as their policies are often
adjusted annually based on their
turnover.
Additionally, the collapse of oil
prices will reduce capital expenditure
across the energy industry for some
time to come, Clydesdale says. This
means new projects awaiting a final
investment decision will be postponed
indefinitely and existing projects put
on hold or mothballed entirely, having
a significant impact on energy-related
construction premium.
What’s the status?
However, later in the year he says
there could yet be opportunities for
underwriters and brokers.
“Projects that have not yet started
will be postponed most likely for at
least three months, which will cause
a dip in written premium volumes
during the second quarter, but this
could well be partially compensated
for with an increase in projects
starting during the third and fourth
quarters,” he says.
“For projects already underway, they
will be requiring period extensions
to reflect the delay caused by the
virus,” Clydesdale adds. “These may
be negotiated this year or toward the
end of the project in years to come so
may well add to the overall amount of
premium this year.”
The great unknown in assessing the
full impact on construction premium,
however, is the response of each
individual government to the crisis.
According to van Gend, there are two
opposing decisions countries could
Infrastructure market update
take creating opposite outcomes for
the level of construction activity.
“On one hand, short-term public
stimulus of governments to protect
jobs and businesses will curb short-
term spending on infrastructure
projects as resources are limited. On
the other hand, some countries may
increase spending on infrastructure to
stimulate economic activity after the
COVID-19 situation eases,” he says.
In the U.S., it breaks down to the
response from state governments.
The Department of Homeland
Security has designated residential
construction as essential infrastructure
business. States can override this;
Cove analysis reveals that 28 states are
allowing all projects to continue, 13
are allowing some projects, three are
allowing no projects and seven states
have yet to decide.
“Construction projects can be broadly
split into commercial and residential,
and the impact is different for both,”
Jansen says. “Shelter-in-place orders
have now been declared in many
states, but it is unclear if these apply to
all construction activities.”
For residential construction, he is
anticipating a drop in demand for new
housing. The extent of that drop will
depend on the ensuing recession.
Jansen points to builder confidence in
the market for newly built single-family
homes plunging 42 points in April to
30, according to the latest National
Association of Home Builders/Wells
Fargo Housing Market Index.
“The impact on business written in
the construction class is too early to
tell, but we are seeing a slowing down
in new projects starting and we expect
to see a delay in other existing projects,
which will result in a reduction in
May 2020
71
premium written for construction
business in 2020,” Jansen adds.
Ultimately, the government response
will have a large say in dictating how
the market for construction insurance
is affected – both in decisions on
public spending, and when private
construction work is allowed to
proceed.
In several countries including Spain,
Germany and even Italy, construction
workers have been some of the first
to return to their jobs, and this could
limit the damage. However, the level
of disruption to economies around the
world is still largely uncertain, and
how long site shutdowns are deemed
necessary will be the biggest impact on
the class.
With three months of disruption
Jansen says the impact on the
construction sector would be marginal,
with the exception of projects affected
by supply chain delays. Disruption of
six months would have a much wider
impact, with some projects mothballed
and heightened risk caused by the
time to remobilise projects and the
potential for smaller subcontractors to
go out of business, he says.
If extended beyond 12 months, Jansen
says there would be a severe broad-
based recession, with the impact on
subcontractors causing widespread
delays and many more projects being
permanently shut down. Owners
may also default on loans, causing
projects to be handed back to banks.
In that scenario, he says government
stimulus packages would most likely
be necessary to get projects – and the
wider economy – back on track.
“The longer it takes for the lockdown
to end, the bigger the impact on
business written in 2020,” Jansen adds.
72 People moves
Jonathan Zaffino has
been appointed Group
President of Ascot. He
most recently served
as President and
CEO of Everest’s Insurance Division.
Zaffino, who will remain on garden
leave until mid-June, will be based in
Ascot’s New York office, where he will
report to Group CEO Andrew Brooks
and will oversee the organization’s
U.S. and Bermuda platforms. He
will also have executive responsibility
for MGU Ethos Specialty. In his
new role, Zaffino brings 26 years of
experience and expertise spanning
underwriting and brokerage. Prior to
joining Everest, he served as President
and CEO of Victor O. Schinnerer, a
Marsh subsidiary, and was a Managing
Director at Marsh.
AXA XL has overhauled its senior
leadership team. As part of changes
to introduce a new operating model,
Paul Greensmith, Neil Robertson and
Kelly Lyles will all step down from
their senior roles. Greensmith’s former
role of CEO for the UK and Lloyd’s is
taken over on an interim basis by Sean
McGovern, who will also retain his
General Counsel responsibilities. Lyles
had previously been Head of Client
and Country Management, while
Robertson had been CEO of Global
Specialty.
The new model will see the creation
of a single global underwriting function
led by a Global CUO. This role is
taken on by Nancy Bewlay, who was
previously Global CUO for Long-Tail
P&C Risk. Other changes include Brent
Hoffman’s move to Chief Claims Officer
and the appointment of Karen le Duc
as Chief HR Officer. Hoffman had
previously been Global Head of Claims,
while le Duc had held a number
of senior roles at AXA Liabilities
Managers. AXA XL CEO Scott Gunter
will additionally take on the role of
Eurasia CEO on an interim basis.
Sedgwick has
appointed Xavier Gazay
President and Director
General of Sedgwick
France. Gazay was
most recently a strategy and M&A
advisor, and group CEO of a key
French claims management services
provider. He will continue the progress
made by Carol Etchebarne, Director
General, and the French team over the
past year. Etchebarne will continue to
support the growth in France of the
major and complex loss services on
international programmes, personal
lines and the TPA business.
May 2020
Liberty Mutual’s
commercial and
specialty re/insurance
operation – Global
Risk Solutions (GRS)
– has appointed David Williams
to the newly created position of
Multinational Senior Vice President
and Chief Underwriting Officer. In the
role, Williams will develop solutions
for mid-size and large customers and
the brokers who support them. He
will report to GRS Chief Underwriting
Officer for North America David
Perez. Williams has more than a
decade of multinational experience.
Most recently he was Chubb North
American Financial Lines Vice
President; before that, he was Chubb’s
Vice President of Multinational
Solutions, where he managed client
acquisition and retention.
Guy Carpenter has
appointed Vijaya
Singh as Global Head
of Marketing and
Communications.
Based in New York, Singh will lead Guy
Carpenter’s branding, public relations,
executive thought-leadership, digital
marketing and internal communications
efforts globally. Singh joins Guy
Carpenter from Russell Reynolds
Associates, a global executive search
and leadership advisory firm, where
she served as Global Head of External
Marketing and Public Relations.
D L Dale & Others,
Syndicate 2525, the
specialist employers’
and third-party
liability Lloyd’s insurer,
has named Charles Harcus Head of
International Casualty. Harcus joins
from Apollo Syndicate, where he has
been Head of International Casualty
since 2014. Previously, he was portfolio
manager, international casualty, Latin
America and the Caribbean at QBE.
Optio Group, which includes MGAs
Ascent Underwriting, Cove Programs
and broker Bay Risk Services, has
named Todd Germano Managing
Director of Optio Insurance Services
North America. Germano joins from
Allied World Assurance Company,

where he was most recently Executive
Vice President of Global Crisis
Management Insurance. Prior to
AWAC, he spent 11 years at AIG, where
he was the first profit centre manager
for AIG construction excess.
Marsh has appointed
David Rahr as Global
Leader, Multinational
Client Service. Based
in Chicago, he will
report to Flavio Piccolomini, President,
Marsh International, and Martin South,
President, U.S. and Canada. A long-time
Marsh executive, Rahr most recently
served as Risk Management Segment
Leader for Marsh’s U.S. Central Region.
He succeeds Justin Walsleben, who has
retired from the firm.
Gallagher has appointed Peter
Chesterfield as a partner for the
construction team within its Specialty
Division. Chesterfield was previously
at JLT, where he was sales leader for
its construction team. Prior to this
role, Chesterfield held a number of
executive roles internationally that
were both sales and service focussed.
QBE has appointed
Jason Harris CEO,
International,
succeeding Richard
Pryce who intends to
retire at the end of this year. Harris will
start in Q4 2020, subject to regulatory
approvals, with Pryce leaving QBE
in early 2021. The role reports to Pat
Regan, Group CEO and forms part of
the Group Executive Committee. Harris
joins QBE from AXA XL.
Pedro Moura Ferreira has
been named Business &
Placement Director for
global broking business
Brokerslink. Ferreira
has held a number of senior positions
in the Portuguese insurance industry,
most recently as Director of Claims,
Technical & Placement Areas for MDS
Portugal. Before that, he was a board
member and Executive Director at
Patris Seguros.
Florida-based MGU Orchid
Underwriters Agency LLC has
appointed Michael Garamoni its Chief
Financial Officer. Garamoni has spent
the past 13 years in finance, reporting
and planning. Previously, he served
as Vice President of Global Finance
for Ryan Specialty Group LLC and at
Pricewaterhouse Coopers.
Scor has appointed Caroline Coulson as
a senior underwriter on the political
and credit risks team within Scor
Specialty Insurance. She will report
to Kade Spears, Global Line Head
of the Political and Credit Risks
Team. Coulson was previously a
senior political risk underwriter at
Lancashire Insurance. Before joining
Lancashire in 2009, she was a senior
analyst at Aegis Defense Services.
Willis Towers Watson
has appointed Jon
Galston as the head
of its facultative
reinsurance business in
Norway. Galston is based in Oslo, and
has previously held various senior roles
at Codan (RSA), If P&C, and Gjensidige
Forsikring. He specialises in large
industrial, construction, marine cargo,
and multi-national accounts, including
both onshore and offshore natural
resources. Galston will report into
both Nils Arne Fagerli, Head of Willis
Towers Watson Norway, and Ghassan
Mansour, Regional Head of Facultative
Reinsurance for Western Europe.
Sompo International Holdings has
appointed Michael Carroll as Senior
Vice President and Deputy Head of
Life Sciences for Sompo Global Risk
Solutions (GRS). Carroll joins from
Chubb and will initially be based in
Raleigh, North Carolina, reporting to
Lisa Davis.
Marsh has named
Fiona Park its
Multinational
Practice Leader for
Scotland within its UK
Corporate division. Based in Glasgow,
Park reports to Allan McPherson,
Regional Managing Director for
Scotland and the North of England,
UK Corporate Division, Marsh. She
has spent the last 15 years providing
risk and insurance advice to Scottish
May 2020
People moves 73
firms across all industry sectors
with operations overseas, as well as
multinationals investing in Scotland
and the wider UK.
Chaucer has appointed Ana Blanco
as Class Underwriter to support
development of its International
General Liability account. She will
work closely with Thomas Beasley
and Rob Neil who joined Chaucer at
the end of 2019. Blanco joins Chaucer
from QBE; previously, she was a
broker at Guy Carpenter.
Allianz Global Corporate and Specialty
has appointed Peter Kiernan Head of
North American Reinsurance in its
Allianz Risk Transfer (ART) division.
Based in Bermuda, Kiernan will report
to ART Chief Underwriting Officer
Richard Boyd. Most recently, he served
as the Chief Underwriting Officer and
President of Axis Re Bermuda.
Ascot has hired a team of four new
Professional Indemnity underwriters
to its Lloyd’s syndicate from Neon
Underwriting. Antonio Bellanca,
Matthew Watson, Manoj Sharma and
Henry Hollingdale all join after Neon
earlier this year announced it would
exit Lloyd’s. Writing at Lloyd’s on
behalf of Ascot Syndicate 1414, the
team’s book will consist of a number of
non-U.S. international PI classes.
AXA UK and Ireland
has appointed Roland
Moquet Chief Financial
Officer. Moquet
joins the division
from AXA Italy, replacing Amelie
Breitburd, who is leaving the company.
He first joined AXA from the French
Treasury in 2005, and has held various
positions, including CFO of AXA
p g in Shanghai.
Tianping
Also joining
the AXA UK and
Ireland Management
Committee is Amber
Wilkinson. Wilkinson
had been Chief of Staff and has been
promoted to Director of Strategy,
Brand and Communications. Her roles
within AXA have included Finance
Director at AXA PPP Healthcare and
Head of M&A for AXA UK.
74 Social scene

Re/insurance companies spread their message on social media

May 2020
 Social scene 75

May 2020
76 Editorial board
R
eactions’ Editorial Board helps
inform and direct our continued
editorial coverage. The board consists
of several of the most senior figures from the
global reinsurance market, who regularly
provide us with insight and guidance on the
biggest topics impacting the industry.
These individuals serve in critical roles
at insurance and reinsurance companies;
brokerages; third-party capital managers;
industry associations; and a variety of service
providers, among other organisations.
Its members are based around the globe
in re/insurance industry centres such as
London, New York and Bermuda.
Reactions’ editorial team regularly speaks
with the board’s members as well as many
of the industry’s leading figures in the global
re/insurance industry to hear their thoughts
on the major issues that shape the market.
Dominic Addesso, President and Pina Albo, Chief Executive,
Chief Executive, Everest Re Hamilton Insurance Group
May 2020
Those conversations form the basis for many
of the interviews and features we publish
online and in print, and also bolster our
knowledge of the trends that our readers
know will affect their business.
The Editorial Board provides valuable
feedback on our features, news reports and
other informational products, in addition to
Reactions’ successful events programme. In
so doing, the board helps to inform the tone,
publishing policy and overall content of our
brand. Its members provide a sounding board
for all manner of editorial queries, and help
empower us to continue to deliver the best
product possible.
As the challenges of the re/insurance
business are constantly evolving, so too is our
Editorial Board – and we seek to continually
add new members to better inform our – and
your – perspective.
Randy Brown, Chief Investment Grahame Chilton, Chairman,
Officer, Sun Life Financial Capsicum Re
 Editorial board 77

Dominic Christian, Rory Cline Jean-Paul Conoscente, Michael Consedine, Eduardo Fábrega,
Global Chairman, President and CEO, Ethos Chief Executive Officer, Chief Executive, National Chief Executive, ASSA
Reinsurance Solutions, SCOR Global P&C Association of Insurance
Aon Commissioners

Franz-Josef Hahn, Andrew Horton, CEO, John M. Huff, CEO, Corneille Karekezi, Group Steven Levy, President
Chief Executive Officer, Beazley Association of Bermuda Managing Director and and CEO – Reinsurance,
Peak Re Insurers & Reinsurers Chief Executive, Africa Re Munich Re America

Howard Mills, Mike Morrissey, President Frank Nutter, President, Maamoun Rajeh, Benedict Reid,
Independent Corporate and Chief Executive, Reinsurance Association Chairman and Chief Associate Partner, EY
Director, Former International Insurance of America Executive, Arch Re
Superintendent, NY Society
Insurance Department

Dave Sampson, President Brandon Sweitzer, Dean, Karen White, CEO, RMS
and CEO, American St John’s School of Risk
Property Casualty Management, Insurance
Insurance Association and Actuarial Science

May 2020
 78 Crossword

C R O S S W O R D
1

2 3

4 5

6 7

8 9 10

11

12

13

14 15

16

Across
5. Jason Howard is CEO of this re/insurance broker
6. Hyperion X has partnered with this ILS specialist on a
whole account collateralised reinsurance product
8. This industry veteran is chairing a steering group to
find a future UK insurance solution to pandemic risk
12. This cancelled sporting event was due to take place in
London from 29 June to 13 July this year
13. The coronavirus is reported to have cost which sector
up to $252bn?
14. Paul Jardine has joined which carrier as non-executive
chairman
16. The UK government has announced a review into
which type of risk?
Down
1. Director General of the Association of British Insurers
2. The only insurance industry representative on
President Trump’s 200-strong council for restarting
the economy
3. This U.S. state’s supreme court has declared
COVID-19 as a “natural disaster”
4. Beazley recently entered this line of business in the U.S.
7. Major annual reinsurance gathering in this city held
since 1957, but cancelled this year
9. Everest Re CEO and President who resigned his role in
April, Jonathan _______
10. Insurer at the heart of a dispute over BI coverage with
up to 10,000 of its UK SME clients
11. Peak Re acquired this ILS manager in April
15. The senior executives of this firm have agreed to 50%
pay cuts in response to COVID-19

April crossword solution Across Down

3. Name of the new CEO of Sompo International 1. This annual industry conference planned for
R 1 Re, Christopher _______ Denver has had to be cancelled
E
2
I 5. Which ratings agency announced in March it is 2. Covea is buying PartnerRe from this Italian
X M working on a pandemic stress test? investment group
3
DON E L A N
4
AMB 5 6
E S T 8. R&Q completed its seventh Part VII transfer 4. London street where Aon’s headquarters are
R E J 7
I in March by taking on the U.S. liability legacy situated
A NG L OF R E N C H
8 9
book of which carrier? 6. Swiss Re has formed a strategic alliance with
D A H R C 10
11. Aviva announced it would be exiting this country, this multinational tech firm
E L N I N DON 11
E S I A I
12

after selling the book to its joint venture partner 7. Name of Willis Towers Watson CEO to join Aon
N L H S W A 13. U.S. state to be hit by a 5.7 magnitude as an Executive Chairman when deal completes
U T A H A A
13
O V I C T OR
14

earthquake in March 9. This broker will become the third largest in

A I G L
15
F S A 14. Name of Marsh-owned Managing General the world on current figures when Aon-Willis
L H E T S Underwriter that claims to be the largest of its completes
L E Y R kind in the world 10. Storm to hit parts of the UK and Europe in
R HU 16
B E I
15. Lloyd’s performance director John Hancock is February, also known as Sabine and Elsa
leaving to join which global carrier? 12. John Dacey is Group CFO of which reinsurer?
16. The Chinese province where the outbreak of
COVID-19 was first identified

May 2020
Resilience.
These are uncertain times.

Everything seems different – and it is.

But our country, our industry, our people,

and our company are resilient. By innovating
and improvising, we are getting the job done.
 
Battling adversity is tough,
but we are up to the challenge.

#Weareopen