A quick-fire Casualty Q&A with Senior Managing Director, Aon U.S., Dennis Alba and Global Casualty Leader, Aon's Reinsurance Solutions, Nigel Light
Aon's Reinsurance Solutions
We provide risk transfer, claims advocacy and capital management solutions
Nigel Light interviews Dennis Alba who has recently re-joined Aon
1. Why did you re-join Aon?
The opportunity to work with a team that is both collaborative and incredibly creative in developing products and solutions was the key factor.?I felt that the environment would be one where I could contribute and also continue to grow.??
2. What’s changed at Aon?
The firm is much more focused and intentional - it was always a firm where your colleagues rooted for your success but today there is much more organizational support and connectedness.
3. Do you wish you had done anything different first time around?
Of course! I did a lot of new business production work solo.?I think I should have pushed harder to have others join me and to interject myself into the efforts of others. I think it would have sped our collective learning, generated a greater volume of better client solutions and increased job satisfaction.?
4. What are you looking forward to this time?
It’s a simple formula. Give me the opportunity to contribute in meaningful ways. Keep the lines of communication open and don’t be afraid to share your unvarnished feedback. Few ideas are perfect at the moment of conception: dialogue, fact finding, collaboration and critical review are essential elements of the creative process.
5. As a reinsurer, what did you think reinsurance brokers should be doing differently/better?
As an underwriter, among my biggest frustrations was the compressed time frames.?I really feel reinsurers would make better, more informed decisions and clients could be given better service if there were more time provided to review submission data and resolve questions.?Reinsurers tend to be more conservative in the face of uncertainty which translates into less competitive pricing for clients.
6. Should reinsurers have any concerns in the current market?
No. Don’t be troubled by the handwringers who suggest that social inflation, litigation financing, forever chemicals, microplastics or cyber catastrophe could wreak havoc on the market. Stay positive!
7. Equally, what emerging risks should reinsureds be focused on?
Across much of the market we sell occurrence-based products.?Insureds’ products liability latency risk, which is not limited exclusively to manufacturers, for many for many chemicals in the stream of commerce is not well understood. As carriers retain more of this risk pro rata or move to excess of loss structures with limited reinstatements, they may be accumulating significant exposure to unreinsured systemic risk.
8. Are there any reinsurance products that are misunderstood and/or under-utilised?
As a reinsurance broker speaking, every form of reinsurance is under-utilized! Seriously, I think companies tend to look at casualty reinsurance from a single year perspective when results tend to be correlated across years.
9. What most frustrates you about our casualty (re)insurance industry?
The short memories that lead to the whipsaw of cycles
10. What should casualty reinsurance buyers be focused on at this renewal?
With reinsurers facing multiple challenges on Cat, be clear as to the goals on casualty reinsurance and clearly communicate these to markets, early! Detailed representation of underwriting and claims approach to inflation, coupled with clarity of risk-adjusted rate change data, will be key. Many reinsurers will be looking to leverage their cat capacity for casualty shares, so understanding where you are from a broad relationship standpoint with each reinsurer ahead of time will enable better decision making in that regard.?
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Dennis asks Nigel some questions
1. Why is this a good time to buy casualty reinsurance?
Any time is a good time to buy as date of loss is random. Specifically at this point in time and as we know under reserving in casualty “kills companies”, continue to buy prudently and don’t be over-complacent given underlying rate-strength.
2. Conversely, why is this a good time to sell casualty reinsurance?
Underlying rate strength, improving investment return and diversification benefit.
3. Given the recent greater uncertainty around the rate of future inflation, are there reinsurance products or structures that deserve greater attention?
Reinsurers need to price for inflation (especially in leveraged XOL) and understand how inflation is dealt with in cedant’s underlying rating – relative stability of reinsurance structure will likely give reinsurers more confidence that they are not being short-term arbitraged against this particular peril…hence better pricing. Reinsureds also need to assess legacy reserves of course as inflation has the potential to affect current reserves, not just future loss, so assessing the adequacy of legacy coverage is equally important.
4. They say turnabout is fair play. I answered why I returned to Aon: Why have you stayed?
I’ve been in the ‘Aon family’ since 1988 with the formation of Nicholson, Chamberlain & Colls. I left Aon in 2005 to join Dom Christian at Benfield, then Aon acquired Benfield in 2010. I’m still hoping there will be a computer glitch and I will get my original Aon perk of final salary pension reinstated!
Wishful thinking aside - the collegiate culture that Andy Marcell/ Dom Christian intuitively instill, coupled with our investment in young people, makes Aon an exciting and enjoyable place to work.???????
5. Many companies seem to make casualty reinsurance purchase decisions on a one year basis; how do we counsel clients on this point and on the accumulation of casualty risk across policy years?
It does feel like this but most cedants are consistent purchasers; disruptors in buying are more often the outcome of unrealistic plans being caried through by force of an individual’s personality in the decision-suite. Turning to accumulation of casualty risk across years, I actually don’t think we do this well enough at all. We are, however, looking to change this with soon to be announced partnerships with two, very complementary, vendor modeling companies.
6. What do you see as the two or three most compelling casualty opportunities for cedants?
7. Do you see the reinsurers’ opportunity set differently than that for primary carriers and if so, why?
Broadly similar otherwise the whole model does not work; underlying respective capital bases, exposure and diversification should all come into play to balance the overall result over time. As a broker, we are agent to the cedant and the reinsurer, we work with both to create sustainable solutions.
8. There is currently strong appetite for many casualty classes among reinsurers. How should clients be thinking about reinsurance capacity over the intermediate term and are there specific recommendations as a result?
We have robust data that suggests consistent buyers of reinsurance are more profitable and more able to grow their business. Certainly, the pure casualty classes still exhibit considerable latency along with exposure to accumulation spanning a number of years. For the financial lines classes, the cycle is more volatile and much shorter; not all buyers seem to recognize this and enter/exit the market at the wrong time. As brokers, we need to do a better advisory job here.
9. How do you see ILS capacity impacting the casualty reinsurance market?
Slowly but surely. More likely in the immediacy in more opportunistic purchases – the miss-factor/commutation challenge is too high for it to be core at this point. Lest not forget, recent deterioration in property cat loss quantum after Industry Loss Warranty reinsurance deals had been commuted left cedants with increased net loss; casualty is often referred to as long-tail for good reason.
10. What are the largest risks, known or emerging, that casualty insurers and reinsurers should be considering differently or more fully?
Anything that affects the health of people!