Canadian Underwriter

Industry expert sees hungry cat bond market turning to direct insurance after re sector


January 14, 2016   by Jeff Pearce


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finance2_sizedPhilip Cook didn’t stray too far out on a limb over his predictions for 2016, but he did have a unique warning over capital for insurance executives in Toronto this morning.

Thanks to what looks to be an overall underwriting and investment return in 2015, Cook expects investment to stay with the Canadian P&C industry even if more opportunities come up somewhere else. “But we’ve got to be realistic. If really significant opportunities come up in another country or in another area then that capital will tend to follow it, and that will put significant pressure on the Canadian industry…”

He was speaking at the Industry Trends & Predictions 2016 Breakfast held by the Insurance Institute. Cook is CEO of Omega Insurance and acts as a consultant to several P&C groups across North America.

“But what is really sucking up the additional capital is the whole insurance-linked securities market.” Cook says the cat bond market hasn’t expanded as much in 2015 as it did the previous year, but what is happening that the operators of those cat bond funds have begun looking at more conventional reinsurance as an opportunity to deploy those funds. “And it’s probably only a matter of time before those same groups decide to look at direct insurance as opposed to…reinsurance.”

Cook says this doesn’t bode well for any significant change in rates, because new entrants will be entering a very competitive market place, wanting to build volume. He says we’re still in the bottom of a soft cycle, but what is interesting is how companies are learning to make money during the doldrums.

Cook reminded his audience that the global private insurance sector covered only $32 billion of an estimated $85 billion in catastrophic losses in the world in 2015.

“The largest insurer in any country is its government,” said Cook. “If we can’t find a way as an insurance industry to work with those governments and get some penetration in the uninsured portion, we actually run the risk of becoming insignificant. If someone were to really ask me what keeps me up at night, it’s the need for our industry to show that we can be significant in that. And it’s really not a good situation…”

Quoting Dicken’s famous “The best of times” novel preamble and invoking the early days of Lloyds, Cook told his audience that the industry offered stability in an uncertain time, and that it would have to start providing the coverage that people actually want instead of what it thinks they want.

Among his predictions, Cook expects more consolidation, more globalization and a significant impact in the near future from the Internet of Things.

This story was originally published by Canadian Insurance Top Broker.