I was recently reviewing the latest content published on artemis.bm and decided to watch the "Artemis & Reinsurance News 2021 Conference: 1st Session." This first session was on "COVID 19 outlook for insurance, reinsurance & ILS (Insurance-Linked Securities)" so I wanted to watch it as COVID19's outlook is directly related to current experiences & challenges I face working in the insurance industry.
The artemis.bm website and other re/insurance industry publications have been a source of big picture insights and possible developments in the future since the COVID-19 Pandemic wrecked the entire planet's previous functioning. A disaster, a catastrophe such as a contagious virus will naturally attract a massive amount of interest and study from the Insurance & risk industries. Through the last year or so, their industry publications provided me a different, more wholistic perspective of COVID-19 and I find it worthwhile to check in regularly on what the quantifiers & marketeers of catastrophic disasters are up to.
This 1st Session of the joint Reinsurance News & Artemis.bm "virtual" conference was a lot to take in. I noted some new terminology in use throughout, such as "premia," "tail," and "pandemic overhang." Premia and tail are not totally alien to me but they are being used in different ways here: ways that lend to an aura of global dystopia actuarial data analysis interpretation into global risk, insurance and bond market price predictions.
Not altogether unusual for a mob such as the group assembled for this virtual conference. What is unusual though, exceptionally unusual is the self-awareness you see strike at the inner soul of these risk professionals. They have a moment of extreme inflection; furrowed brows, anxious unease, watery eyes and an uncomfortable stammer to their speech. The words they are stringing together to describe COVID19 in terms of insurability, of risk, of how to predict and quantify emerging types of loss and in what aspects these losses will affect health, society, economy & humanity is frankly macabre.
Typical matter-of-factness escapes them. It is a maudlin thing to realize that suddenly your cadre with it's precision, insight and access to highly specialized global insurance markets is as mortal as all others. Not just that but these professionals are able to suffer to a wholly higher level of mental torture, because they see and know intimately that what they are saying is truly, utterly terrifying in the reality that has not quite sunk in yet.
What will happen once it sinks in? Let me share some timestamps with you and provide my opinion on the implications of witnessing the cadre of re/insurance market masters falter like the rest of us.
Meeting the new, pandemic wasn't on anyone's radar. How is a pandemic treated as an event which causes loss, when does the second loss kick in? When do the losses stop flowing in? Have we seen the entirety of losses already or is there more to come?
Lots of uncertainty but some resilience in the face of not reaching the predicted losses from the start of the pandemic
uncertainty how long claims gonna go for or from where they will originate
Heightened Risk "Premia"
Still under $30 billion total cost of incurred and anticipated Property & Casualty losses from #COVID-19. $200 billion was initially predicted
Commercial, Wholesale, Retail (especially motor) are lines of insurance that require volume to be profitable, not specialty risk or reinsurance
The only prediction for the future is uncertainty. The only answer is uncertainty. Prices increases are being driven by heightened perceptions of future risk & losses.
Linda Johnson Length of tail (short tail, long tail) of Covid was and is unpredictable but initial projections have shown that the tail is always longer than anticipated. #COVID19's tail isn't only an Insurance tail; there is a social & economic loss tail that has to be considered.
Timestamp: 9m23s
Event will be extended with things like the vaccine, for any illness you also have the long term consequences of say 20 years from now: post-illness. How does this loss impact children or other certain demographics.
We need to be prepared for the unknown unknowns - in terms of mental health.*
Commentary
Listening to Linda Johnson here was enough for me to rewind the video to replay it so I could watch her as well. It is apparent that she prepared her views and projections carefully prior to coming online for her presentation and I think she probably cried whilst rehearsing it in private. It is not going to be easy to listen to her projections.
Timestamp 10m05s
"So I think that the tail will certainly go into the future of our children."Timestamp 10m52s
"It's really scary if you think about what Linda said about the insurance tail is probably going to be short...
but then; mental health, and children, and what are the unknown unknowns. That is for me really quite frightening...""That is what is driving the fear in the market. Not the boring capital levels, and liquidity levels, and premium levels and values at risk that we normally talk about in insurance. It's really a macro concern about all of those unknown unknowns that Linda mentions. I think that's really more important than any other market dynamic."
Joanna Syroka ILS & Hybrid insurance product senior underwriter and Director of New Markets https://www.sifma.org/people/joanna-syroka/. Her current employer is Fermat Capital Management.
Timestamp 12m55s
"But the more liquid part of the ILS Market, the Catastrophe Bond market has emerged relatively unscathed. Cat bonds (Catastrophe Bonds) are in general named perils transactions and apart from very specific examples where these bonds target pandemics and excess mortality, they generally don't cover pandemic risk."
Commentary
Joanna seems to be stumbling a little over the projections and assessments. Expresses concern another wave of pandemic and another wave of lock downs occurring. "We believe investors can be forward-looking on on on issues like this..."
Hoping that lock-downs do lessen... which they all hope they do... should bring with it signs of economic recovery.
"Global world-view and a global paradigm where everyone is looking through the entire world of a whole different lens."
"Contract wording is going to part of the back to basics which will be required going forward."
Very creative, very new structures to address the growing need for a whole new approach in managing these risks. There is no solid statements made in terms of measuring short, long, known and unknown projections into the future. Second events, vaccines, concerns abound..
If you are in the market seeking second event cover, specifically in regards to COVID19. Contracts that are already in existence could become litigious when the pandemic contracts are unclear on defining an event as one event or as a second separate event.
Timestamp 19m51s
"Interest in non-damage BI Cover worldwide and how do we underwrite it, can we underwrite it and what are the wordings, and you know, time clauses.."
Commentary
This issue directly relates to my work. It is going to be the predominant issue that Insurers will be grappling with and like mentioned earlier, the policy wordings and how they could be interpreted will be plaguing the legal system and courts for quite some time. It is already a shitshow here and all the legal chest-beating I've witnessed so far has been summarily incorrect (in my opinion).
"Its a very robust market excluding the COVID19."
"We will find solutions for those COVID19 risks in 2021, 2022."
"High risk period, investment return period."
"People are smart, that they are taking responsible calculated risk and they are going to create solutions but they are not buying capital now."
"Standardized Language, some common understanding. What do certain words mean to who and why." This is to ensure that policy wordings and contracts are standardized to have say "Pandemic, Contagion, Epidemic" mean the same around the world as an event which could trigger a contract or policy coverage.
"Retrocession property catastrophe risk adjusted rates on-line increasing 20-25% from a year ago.."
Talking about arbitrage in retrocessional and ILS capital markets, mind blown a bit here. Apparently there is a gap widening between traditionally rated (paper rated) capital and products and the secondary markets they are traded on.
Timestamp 29m43s
"Is Pandemic Coverage just going to get worded out of existence do you think? at the time of these renewals? Obviously it's already worded out of most of the Catastrophe Bond market."
"Nobody wants to take on any uncompensated risks including ILS investors"
"Exclusions is obviously one way of dealing with Pandemic Risk. "
Timestamp 31m10s
"Feels like a bit of a failure of the industry to not consider alternative ways to covering this risk... what is the insurability of pandemic risk?"
"How do you define pandemic risk, is it meant to cover everything? Given the pervasive impact of the pandemic when taking into account government response and lockdown etc, it's not simply a case of looking at the chain of events and saying they are all uninsurable"
"Can you take this risk, quantify it and put it in a box and market it to capital markets and investors? It's something that we can expect to see evolve in the next 18-24months."
Commentary
Detailed discussion continues around product design for non-damage BI (Business Interruption), Event Cancellation & Civil Authority or Civil Action Risks. This is where I see a dangerous encroachment from the broker / insurer privately underwritten risk field of play into the governmental mutual funds, levies, taxes and reinsurance pools field of play. A co-operative joining of the public and private spheres in terms of the pricing, analysis and underwriting of risk events such as non-damage BI (Business Interruption), Event Cancellation & Civil Authority or Civil Action Risks is not an optimal solution as any solution resulting in such a public/private hybrid will likely be exempt from existing statutes and laws or create further unknown statutes and laws to operate within.
Timestamp 34m35s
"If the risk of pandemic isn't pandemiological but if it is all just based on government action, well then that is kinda hard to model. Who knows what BoJo or Biden is going to do next?"
"Is pandemic the same as terror?"
"I don't believe that Pandemic is uninsurable, but one big caveat to that is, if the risk is just based on government action then that is impossible to insure. And if that is the primary driver of the peril then unfortunately and i do mean unfortunately there would have to be some sort of non-commercial public backstop. We as brokers have a duty to find another solution to that if we can."
Excluding the "Presidential Decree related risk."
"In 2017 we have the Pandemic Catastrophe Bond brought to the market by the World Bank."
(Check World Bank IBRD - Pandemic Catastrophe Bond on Artemis.bm)
Public / Private partnership is likely but there has to be creativity and innovation for the industry making a product so new and complex on a global level for global level risks.
