COVID-19Virtual Roundtable

ISSUE 6: Leaders’ commentary on latest crisis developments 27 April – 1 May 2020

CONFERENCE SEASON 2020

Supported by

In this edition:c Does Monte Carlo set a precedent for industry’s Q4 events?c Impact of technology c Largest ever loss?c Could balance sheets sustain an active storm season?c Emerging claims

For the last sixty-three years, over a long weekend in September, in the

“billionaires playground” that is Monte Carlo, the crème de la crème of our industry have gathered.

It’s hard to think sometimes that we’re referring to a (re)insurance event, but as one of the highest revenue generating meets after the Formula 1 Grand Prix, it’s certainly something to take note of.

At the end of last week, the event organisers announced that the 64th edition of the Rendez-Vous de Septembre has been cancelled.

While it has perhaps come as no surprise, it’s certainly acting as another significant reminder of the gravity of the situation that has been caused by the devastating spread of Covid-19 which has impacted all areas of our lives.

Indeed, Covid-19 has made us take stock of a lot of things from both a personal and business point of view. It’s made us reconsider and discover new ways to interact with each other, making face-to-face meetings something we almost certainly long for, but not a necessity.

During this week’s Covid-19 virtual roundtable, our esteemed panellists have shared some of the ways in which they’re now interacting with

their colleagues, clients, brokers and other stakeholders during these unprecedented times. Now that it would seem that this year’s conference season has almost certainly been cancelled, the emphasis on engagement has never been greater.

However, while meetings in the glorious spaces of Monte Carlo will cease to exist this year, it doesn’t mean

we can’t recreate some of the magic. At The Insurer, we’ve been working tirelessly to come up with some compelling alternatives which we look forward to sharing with you in due course.

Elsewhere in the(re)insurance calendar, hurricane season is almost upon us. With an above average hurricane season being predicted, our

industry leaders warn of additional stresses to come. Clearly the industry balance sheet and earnings would benefit from a moderate hurricane season, but we shall have to wait this storm out.

Also in this week’s roundtable, the need to help governments and the public – on both sides of the Atlantic – understand how (re)insurance plays an essential role in rebuilding economies in a post recessionary world has also been raised.

The appointment of only one insurance industry executive to Donald Trump’s Great American Economic Revival Industry group has been deemed problematic, further highlighting that the sector has to improve its standing with politicians.

I hope you enjoy this week’s roundtable – it makes for some informative reading.

While it has perhaps come as no surprise, it’s certainly acting as another significant

reminder of the gravity of the situation that has been caused by the devastating

spread of Covid-19

THIS WEEK’S PARTICIPANTS

2 | COMMENT | 27 April – 1 May 2020

John Huff, CEO, Association of Bermuda Insurers &

Reinsurers

Michael Halsband, Partner, McDermott Will

& Emery

Christopher Gallagher, CEO, Sompo International

Commercial P&C

Jon Colello, CEO, P&C Americas, and

President of Partner Reinsurance Company

of the U.S.

Cancellation notice

Rebecca Hancock, News Editor

James Bradshaw, Chief Executive Officer, Willis

Re North America

COVID-19 ROUNDTABLE | 27 April – 1 May 2020| 3

With the rest of the 2020 conference season in jeopardy, what alternatives is your organisation looking at to stay engaged with clients and counterparties at an unprecedented time for the (re)insurance industry?

James Bradshaw: We have been in constant contact with our clients, counterparties and

associates since the beginning of the crisis and have used multiple platforms to engage on both on individual and group basis.

Constant and informed communication is a staple of Willis Re’s value proposition, and social distancing and sheltering in place have only made that more important. We have already seen the cancellation of several industry conferences, and we expect more will follow. We expect that if any do proceed later this year or next, they will be dramatically different from past events, as hotels and other venues adapt to the new normal of social distancing.

Jon Colello: As the industry comes to terms with the event, our clients are looking to have deeper,

more frequent conversations with us to help formulate their go-forward strategic plans.

Fortunately, PartnerRe has a number of cloud-based tools across

our company and so we were able to quickly pivot to work-from-home mode almost overnight. As a result, we’ve been able to continue to communicate with our clients and brokers via videoconference and webcasts. In some ways, we feel

better connected than before as we work through the uncertainty together. At the same time, this event has reinforced the personal nature of business and relationships with our customers and brokers. We are using modern technology, but in some ways also turning back the clock and spending more time in discussions with our clients and brokers on the phone.

In my experience, the strongest relationships that a company can develop are those that are forged and strengthened during times of uncertainty.

Christopher Gallagher: Our goal of communicating during this time has been to maintain a balance of

In my experience, the strongest relationships that a company can develop are those that are forged and

strengthened during times of uncertaintyJon Colello

‘business as usual’ while addressing specific Covid-19 related needs.

From personal phone calls to emails and website postings, we are continuously connecting with our markets.

Perhaps the channel we are utilising the most during this crisis is LinkedIn. This has allowed us to stay engaged with our markets, sharing timely and important information – real time – including a series of Covid-19 specific risk control tips.

We have also leveraged client portals and used business communications tools – whether for an organized virtual happy hour or video conference – to stay in front of our trading partners and clients.

Michael Halsband: With the help of technology – such as webinars and video conference meetings –

McDermott Will & Emery’s Insurance Transactions & Regulation team is deeply committed to communicating to our clients and the broader insurance industry on key issues.

We reconstituted our insurtech issues group, indeed broadening its participation and scope to the industry writ large, gathering on a weekly basis to conduct a video recap of various state and federal regulatory developments, Covid-19 related litigation trends, and beyond.

We have made broadly available, including on an exclusive basis to subscribers of this publication, our Covid-19 State & Federal Insurance

4 | COVID-19 ROUNDTABLE |27 April – 1 May 2020

Issues report. The firm has also established a Coronavirus Resource Center, offering our clients access to a multi-disciplinary team to keep our clients informed of the latest developments, and provide comprehensive insight to help them navigate the crisis.

John Huff: There have been some significant headlines this past week on cancellations of local and

global industry events, including the annual Monte Carlo Reinsurance Rendez-Vous and groups are already announcing dates for 2021 calendars. The webinar circuit, however, is red hot. ABIR is already taking advantage of the virtual tools. It seems shorter presentations with smaller groups is the most effective model. The informal networking and hallway conversations will be missed opportunities, but tightly managed content can still be shared. And yes, your microphone is on.

What impact will Covid-19 have on technological innovation in the P&C sector?

James Bradshaw: Covid-19 will likely have a strong impact on technological innovation across the

entire (re)insurance sector. Aside from the obvious investment in systems designed to enhance remote communication and work

environments, we expect to see increased interest in technology to support all aspects of the (re)insurance value chain — from the use of artificial intelligence (AI) in risk identification and selection, to greater automation of the

underwriting process, to the development of digital placement platforms, to the notification and adjustment of claims.

While all of these have already been occurring to various degrees over the past few years, we would expect to see increased and accelerated interest in the months and years ahead.

Christopher Gallagher: Remote loss control inspections and loss adjusting are two key

areas that are becoming more innovative in this remote working environment. We are seeing increased reliance on remote sensor-

The Covid-19 pandemic must and will force a paradigm shift in how the industry operates. Expect hyper-

acceleration of AI, machine learning and big data

platformsMichael Halsband

based monitoring, telematics, virtual reality loss control training, and digital damage assessment using video or aerial images that meet clients’ social distancing needs. These “remote tools” will continue to evolve the more they are put to use.

Overall, the industry has coped well with business continuity through this crisis. Our employees should be commended for their commitment and adaptability under unprecedented circumstances. It’s a true collective team effort.

Michael Halsband: The P&C insurance industry has historically been a trailing adaptor of technological

innovation and arguably continues to be. The many stages in the risk value chain – from origination through to risk syndication – are each replete with inefficiencies. The evolution of insurtech over the last five years has heighted incumbents’ focus on this systemic friction – at a pace slower than its proponents anticipated.

The Covid-19 pandemic must and will force a paradigm shift in how the industry operates. Expect hyper-acceleration of AI, machine learning and big data platforms.

John Huff: Bermuda’s leading insurers and reinsurers’ investment in technology has really paid

dividends in terms of “operational resilience” during the

our industry than Evan Greenberg.Let’s not forget that other leaders

have weighed in and let their feelings be known during this crisis. We have also been impressed with the speed and scope of the responses from the various trade groups. The AIPCI, NAMIC, RAA, CIAB, among others, have all done a great job in stepping up to not only caution legislators and

regulators of the consequences of some of their proposals, but also offer resources and recommendations to help manage this as well as future crises.

Jon Colello: As an industry, we need to help governments and the public understand how

(re)insurance plays an essential role in rebuilding our economies in a post recessionary

Covid-19 pandemic. Faced with “shelter-in-place” civil authority orders by the government, the industry quickly moved to #WorkfromHome. From home offices, spare bedrooms and kitchen tables, Bermuda’s global underwriting hub made it through the 1.4 renewals and the better part of the last five to six weeks by leveraging technology.

A strong working relationship with the Bermuda government has allowed for critical business continuity and any IT challenges to be addressed in real time. Reinsurance is a relationship business, but is it transitioning into a virtual relationship?

What does the inclusion of only one industry representative on Donald Trump’s Great American Economic Revival Industry Group’s say about the challenges facing insurers to win the hearts and minds of politicians and the public?

James Bradshaw: I think there are many very qualified candidates within our industry that

could have been chosen for Donald Trump’s Great American Economic Revival Industry Groups; however, if you were only allowed one representative you would be hard pressed to find a better advocate for

I think there are many very qualified candidates within

our industry that could have been chosen; however, if

you were only allowed one representative you would be hard pressed to find a better

advocate for our industry than Evan Greenberg

James Bradshaw

COVID-19 ROUNDTABLE | 27 April – 1 May 2020| 5

world by having a healthy supply of risk capital that allows businesses to make investments and take risk again.

At a time when the world will be faced with considerable uncertainty, economies will benefit from strong, well-capitalised (re)insurers that can help insurers and the ultimate policyholders to reinvest in the economy. The basis for this needs to be a system that continues to be rooted in strong defence of contract law. In this way, (re)insurers will continue to be able to provide a broad suite of products that pay losses on exposures that are properly measured, underwritten and priced.

Christopher Gallagher: It’s certainly a big group, but one voice is better than none. Our industry does

consider pandemics and other risk scenarios in the coverage we offer. Contract language is foundational, and we have to strenuously defend attempts to retrospectively rewrite our contracts.

Our industry is viewed as a key component to economic recovery and because we think about tail risk scenarios, we can play an important role in developing public-private solutions to address tail risks going forward. There are more global threat scenarios out there in addition to pandemics!

Michael Halsband: Sadly, res ipsa loquitur. From its earliest days, the

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industry has facilitated the free flow of commerce, providing a rational and transparent market to hedge predictable, quantifiable risk events.

Even in instances of foreseeable catastrophic shocks to the system, traditional and alternative sources of risk capital answered the call to re-establish risk transfer markets: class of 2001 and 2005 reinsurers, post 9/11 commercial liability, and post-KRW ILS markets, are a few examples.

Catastrophic global systemic events, arguably foreseeable, are beyond the ordinary course and capital of the industry.

That said, where public solutions fail to address the coverage gap, we expect to see and be involved in private industry solutions and public-private partnerships that will come to the forefront in the coming months.

John Huff: Well, thankfully the single industry representative – Evan Greenberg of Chubb – is a

strong one. Unfortunately, as an industry, we don’t do enough of broadcasting our successes including our work to rebuild families and communities after disaster strikes.

Consequently, when we are unfairly attacked, our bank of goodwill is often lacking.

With constant political, policy leader and staff turnover, we

puts additional financial strain on the industry has the potential to cause further disruption and uncertainty.

For example, some of the Florida underwriters would struggle dealing with both a substantial reduction in capital and an increase in the cost of reinsurance in a “heavy” hurricane season.

Jon Colello: Clearly the industry balance sheet and earnings would benefit from a moderate

hurricane season as we continue to develop a clearer picture of the extent of the effects of Covid-19.

I believe the industry’s approach to managing natural cat events is prudent and generally we are prepared for both frequency and severity events.

However, a heavy hurricane season would clearly add further disruption to a market already in flux.

Christopher Gallagher: A heavy hurricane season would have a severe impact on the P&C sector

amid the Covid-19 crisis. Debt and underwriting leverage in

this sector have crept up – as many of our peers have attempted to preserve ROE as margins are compressed through the soft market.

In the scenario of already stressed balance sheets, coupled with a heavy

need to up our game of fostering relationships and educating leaders in Washington DC and other state capitals on our value proposition.

What impact would a heavy hurricane season have on the P&C sector amid the Covid-19 crisis?

James Bradshaw: That depends on your definition of a heavy hurricane season (size,

frequency and location of

the storms) as well as the relative financial position of the (re)insurance market – given the uncertainty over the scale of Covid-19 losses and the continued volatility in the equity and debt markets.

It’s safe to say that any event that

In the scenario of already stressed balance sheets,

coupled with a heavy hurricane season, the P&C

sector should be able to pay claims – but expect rating

downgrades, liquidity issues and some insolvenciesChristopher Gallagher

hurricane season, the P&C sector should be able to pay claims – but expect rating downgrades, liquidity issues and some insolvencies. We are already seeing it and we are not at 1.6. Taking risk going forward would be challenging for many.

Now more than ever, risk managers and reinsurance buyers need to consider the balance sheet strength of their counterparties on a stressed basis and their resilience to future natural catastrophe events.

At Sompo International, we are fortunate to be in a strong financial position.

John Huff: An above average hurricane season is being predicted and the season starts in about a

month. Bermuda’s leading role in natural

catastrophe reinsurance coverage has never been more important as climate change is making events more frequent and more severe.

Additionally, ABIR actively participates in the Insurance Development Forum focusing on closing the protection gap between economic and insured losses for these climate risks. Capital is in place for the anticipated 2020 events, but it’s important this capital isn’t hijacked for retroactive business interruption coverage that was neither underwritten nor priced.

As the Covid-19 crisis deepens, what other areas of claims exposure are emerging and can it now be characterised as a clash event?

James Bradshaw: We expect Covid-19 losses to emerge across a broad range of P&C, life,

accident and health risks. Some will be valid and warranted

while others will be motivated by attempts to recoup loss of revenue and/or value as a result of the pandemic.

Determining what are clash events and whether they are subject to any reinsurance recoveries will very much depend on the specifics of the reinsurance placement.

This is more than a claims clash event — it is the perfect storm. Covid-19 is a global health crisis creating a global economic crisis and it is impacting every aspect of our society.

Christopher Gallagher: While the P&C sector considers these sorts of risks, and provides limited

coverage for pandemics, covering even a small fraction of the economic loss will result in significant global industry losses.

We must not lose sight that this

crisis extends well beyond claims exposure and will put stress across every aspect of the P&C sector’s balance sheet and operating model.

Asset valuations, cash flow, counterparty risk, operational process and our employees are all under severe pressure.

This is a textbook enterprise risk

management correlating tail risk event.

There will be lines of business with significant exposures and some with smaller exposures—but that is only half of the picture.

The other half is the major stress that will be put on the asset side of the business.

We expect Covid-19 losses to emerge across a broad

range of P&C, life, accident and health risks. Some will

be valid and warranted while others will be motivated by attempts to recoup loss of revenue and/or value as a

result of the pandemicJames Bradshaw

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