REINSURING NATCAT RISKS Conference (I): Over 98% of the PAID portfolio has the highest level of modelling data quality

NatCat exposure versus coverage, the largest natural catastrophe risks affecting Europe, as well as the best solutions for closing the insurance gap were just a few of the topics analyzed during the REINSURING NATCAT RISKS Conference taking place at FIAR 2018.

Daniela GHETU, Editorial Director, XPRIMM Publications
  • There is no geographical area which wasn't hit, in a way or another, by a natural catastrophe in 2017.
  • Reinsurers were hit by these losses generated by natural catastrophes, their profitability suffered last year: the top 5 reinsurers have seen their profit reduced by an aggregate sum higher than 11 billion EUR. Despite this, the reinsurers coped very well with 2017 (which was an eventful year when it comes to natural catastrophes).
  • In our region (CEE), 2017 did not bring such impressive catastrophic events compared with the rest of the world, but we did have losses produced by storms, wildfires, hailstorms, floods, heatwaves and so on. In Hungary and in the Czech Republic, for example, claims paid for the fire insurance lines went up by 25-26% last year, as a result of the damages produced by Storm Herwart in September 2017.
Nicoleta RADU, General Manager, PAID Romania
  • PAID Romania's vision includes:
    • Effective claims handling, in order to ensure the prompt payment of compensations in case of mass natural disaster.
    • Increased awareness of the Romanian public about the natural catastrophe risks they are facing and the benefits of insurance.
    • Support data improvement in order to obtain most reliable and detailed risk assessment for internal Risk Management and effective reinsurance protection purchasing
  • PAID Romania is comfortably compliant with Solvency II requirement with Solvency Ratio, estimated around 200% at the end of 2017. The company had a combined Ratio of 79.87% at the end of 2017.
  • Full retention of profit / no dividend payout / all profit reinvested into PAID
  • In 2017 PAID continued to concentrate on improvement of the data quality managing to obtain excellent results:
    • Geocoding at address / street level reached 71.91%
    • Significant improvement in the percentage of portfolio with known construction type, year of construction and number of floors
    • Overall over 98% of the portfolio has the highest level of modelling data quality
  • Collecting the data at high quality and granularity level allows PAID to obtain detailed risk assessment which leads to a better internal risk management and to reliable catastrophe modelling used for reinsurance capacity decision making
  • The current reinsurance programme capacity of PAID Romania is 900 million euro
  • PAID values continuity and long-term stability with its reinsurers and is keen to continue to build on the existing important and strategic partnerships
  • The main goals of PAID Romania for 2018 include:
    • Continuing to strengthen PAID's own funds and solvability
    • Implementing  PAID's communication strategy to raise awareness of PAD
    • Gradual increase of the penetration rate
    • Ensuring efficient use of capital through continuous optimizing of reinsurance program whilst maintaining high quality of reinsurer security
    • Further aligning capacity with min. 1:200 RTP according to RMS EQ PMLs
    • Finalising the Mass Claims Plan
    • Full alignment to GDPR and IDD regulations

Sever GEORGESCU, Scientific Director of National Institute, URBAN-INCERC
  • In an article published on 25 March 2014, The Guardian published an article which underlined Bucharest's risky reputation as "Europe's Earthquake Capital", or "the most earthquake-prone capital in Europe".
  • However, when it comes to historical earthquake disasters in Europe, some of the most destructive were reported in Lisbon (1755 - 30-40,000 victims), Messina (1908 - 75,000 - 200,000 deaths), Avezzano (1915 - 33,000 deaths), Friuli (1976 - 1,000 deaths, 2,400 injured), Irpinia (1980 - 1,404 deaths; 4,624-7,000 injuries), Skopje (1963 - 1,070 deaths, 3-4,000 injured). By comparison, in Romania, we had two major earthquakes in the last century: Vrancea, in 1940 - 593 deaths; 1,271 injured (Out of these, in Bucharest were reported 140 deaths and 300 injured) and Vrancea, in 1977 - 1,578 deaths; 11,321 injured (Out of these, in Bucharest 1,424 deaths and 7,598 injured).
  • Vrancea source - Great magnitude events at decades interval - mean value 3 times a century for some 1,000 years data.
  • Almost 50% of Romania is at risk of each Varncea earthquake.
  • Annual seismic risk is reduced, as compared with traffic and other health risks, vulnerability of traditional buildings is moderate, but accumulated vulnerability and exposure are higher for pre-1940 high-rise structures in Bucharest, without earthquake design, damaged in 1940 and 1977 and not strengthened.
XPRIMM Circle of Debates - part I

Bruce SAMPSON, Managing Director Reinsurance CEE, GUY Carpenter (United Kingdom)
- What we are witnessing now is a very resilient reinsurance market. 2017 definitely had an impact on profitability. There is a lot of reinsurance capacity still available. We are seeing a market increase in non-traditional capacity. We are seeing some firming of the pricing, but the market is very resilient and it has ways to recover after the 2017 losses.

James GRINDLEY, CEO, CertAsig Group

PAID and Romania are not big enough markets for cat bonds yet. Traditional reinsurance is the way forward for now. The prices are still competitive, despite the huge losses reported in 2017. 

Bruce SAMPSON, Managing Director Reinsurance CEE, GUY Carpenter (United Kingdom)

Cat bonds will play a part in the future, but the traditional reinsurance market is still competitive enough. Cat bonds will definitely play a role in the future.

Nicoleta RADU, General Manager, PAID Romania

Regarding the extreme weather events, which are getting more and more common today, it would be very difficult to add another risk to the mandatory household insurance policy, because, first of all, we need to have a history for such a new risk, to model this risk and to have more detailed assessment of this risk. For example, we had a storm in Timis region. We have somehow to take into consideration the recurrence of this event before considering to take it in the mandatory scheme. It is hard to believe that we can add, on the mandatory household insurance scheme covering the entire country, events such as hails or storms which appear in just a small region / a county.

Florin GOLOVATIC, Director, Supervision and Control Direction, ASF - Financial Supervisory Authority

In the Mass Claims program developed by PAID Romania there are other institutions involved which are putting together the necessary efforts and resources to make sure that, if a significant event occurs, the claims settlement process will be efficient.

James GRINDLEY, CEO, CertAsig Group

When you look at the property insurance data and compare it, it is clear that Eastern Europe needs to develop this segment. So the property market must go up. The increase reported on the property market will accelerate in the next period - the facultative household insurance, but also the mandatory household insurance will both increase. We will work closely with the regulators and institutions to increase the penetration rate of household insurance in Romania.

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