With new technology many areas of life are changing, some think for the better and some think for the worse. This is equally true in the reinsurance market where technology is coming in to try to make things more efficient and ‘better’, often in the hope of reducing the price for coverage.
There has been much talk about how smart contracts on the blockchain will revolutionise insurance and reinsurance policies and contract wordings; about how they will be quicker, cheaper, digital, authenticated by nature, pay claims automatically and overall reduce the risk to all parties. The question therefore is, “can a smart contract on a blockchain replace an (re)insurance contract?”.
Cyber seems to be close to everyone's thoughts at the moment. At a time that the markets are seeking new business to write with their overcollateralised balance sheets and ILS funds are seeking new products to invest in that are not US hurricane and earthquake, many are turning to cyber. So how well does cyber fit the insurance model?
Today investors in certain ILS structures are cosily told about the risks that they will assume – non-correlated to the capital markets, well selected, well modelled and part of a well-diversified portfolio. Whereas it is doubtlessly explained that events can and periodically do occur, investors see from recent years that this is infrequent and the returns appear good.
Solidum has again profited from trading in distressed Cat Bonds, this time it was the Multicat Mexico C tranche. Through superior and timelier knowledge Solidum was able to purchase a few million of the notes at 20 cents for them to increase in value to close to 50 cents after a few hours, ultimately maturing at 50 cents shortly thereafter.
Casting one’s mind back to the heady premium days of post Katrina / Wilma, life for the reinsurance market, including the nascent ILS market, was good. It was what in the industry is called a ‘hard market’, a market where terms are hard i.e. high premiums combined with narrow coverage scope. Premiums had sky-rocketed and capacity remained fairly scarce. Once they had put to work their own capital, enterprising reinsurers pondered how to continue to capitalise on this boom time.
Solidum Partners AG
Mühlebachstrasse 70
CH-8008 Zurich
Switzerland
T +41 43 521 21 80
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