The French reinsurance company SCOR “self-proclaimed” for not having renewed its catastrophe mortality obligations in the past, explained today the new CEO of the company, Laurent Rousseau.
Laurent Rousseau was speaking at a virtual event hosted by the organizers of Rendez-Vous de Septembre (RVS) today, during which he discussed the pandemic and its impact on the global reinsurance industry.
Asked about the insurance-related securities market (ILS) and also about its point of view on pandemic bonds, therefore catastrophe bonds which can specifically provide a reinsurance capacity backed by capital markets to pay claims related to futures pandemics, Rousseau gave some indications on how the new CEO of SCOR thinks about ILS and cat bonds.
“SCOR had issued an extreme mortality bond a few years ago and we did not renew it when it matured,” said Rousseau.
Adding that, “We kicked ourselves for that, as you can imagine.”
This could well be a reference to the fact that an existing mortality obligation would have provided an additional layer of retrocessional protection for SCOR during the ongoing pandemic.
He then discussed the potential of capital markets to support the future pandemic risk capital needs of the global economy, saying he certainly sees a role for the ILS, but at the right time.
He explained that, “Intuitively and intellectually, yes, I imagine there is a great future for ILS, yes there is a great future for ILS beyond the property chat, and yes there should be. ILS for pandemic bonds.
“Now, how is the price, how do you structure it, the parametric meeting in relation to the indemnity. The devil is in the details. So what is the future of pandemic bonds?
“It’s interesting that we’ve seen a few of our customers and competitors jump into COVID covers. I don’t understand how they can bring value to clients and if they bring value to clients I don’t understand how they can be sustainable for their providers.
“So I think it’s important to test and learn to try to find solutions. But it’s important not to mess around either when, when you know when I in P&C parlance, would you issue a chat bond while you still have the wind in Miami?
“We haven’t seen this. So I think you should also wait a bit on the life side. “
Which makes perfect sense. Issuing a pandemic bond now would be difficult.
However, issuance of Cat Bond Mortality Bonds is possible, as rival reinsurance company Swiss Re demonstrated with its latest Mortality Bond Vita Capital earlier this year.
This was the first ILS show to cover deaths from the COVID pandemic, but only from the start of 2022. But it shows that there is appetite and also potential, if any. Reinsurance companies like SCOR want to obtain a retrocessional level of funding to cover potential future peaks. in pandemic mortality, including from COVID.
Rousseau then gave an overview of his perspective on the ILS market at this time.
Referring to SCOR Investment Partners’ ILS operations, he noted that SCOR itself has a large ILS fund, which started out as a catastrophe bond strategy.
Rousseau said: “The risk bond market is doing very, very well, so I think there may be some further training and advancement here.”
But he added that “the collateral collateral market has not collapsed, it has really taken a hit. “
He then made a comment which suggests that Rousseau’s take on ILS is that the industry must continue to evolve over the next few years and that he expects it to do so.
As he said, “For me, the way we see the ILS market is not a good guide for the future.
“I really see the future as different and we shouldn’t be prisoners of the past.”
We would agree with Rousseau, that the ILS market we see today is unlikely to look like how capital market investors will access insurance and reinsurance-related returns in the to come up.
There is a lot of work required to evolve the ILS industry, especially to increase the liquidity and negotiability of ILS contracts and risks.
But, over time, we would agree that getting stuck in the past won’t get the use of capital market funding in reinsurance where it really should be in the future.