Innovation is defined as the use of new ideas and methods and InsuranceERM's judging panel was highly impressed with the way PCS, a Verisk business, has innovated with industry loss warranties in the area of specialty retrocession.
Specialty retrocession has always been a tricky business for the reinsurance industry. Usually driven by rating agency or regulatory requirements, reinsurer demand for retrocession capacity has not always been linked to the loss environment.
In the past, accessing retrocession in the form of industry loss warranties (ILWs) would have required using a source like publicly reported data. But many reinsurers have backed away from that.
An ILW is a reinsurance or derivative contract that kicks in when industry-wide insured losses exceed a specified threshold. Coverage is typically triggered when an index provider says the relevant threshold has been met.
PCS has innovated by developing a platform that provides reliable specialty industry-wide insured loss indices that enable reliable access to retrocession cover.
The launch of PCS Global Marine and Energy in 2017 was the first step toward re-establishing a market for specialty lines ILWs.
Being able to trade marine and energy ILWs based on PCS data, which began in the summer of 2017, has led to further demand, with the market supporting worldwide PCS loss index development for terror in 2018, cyber in 2018, onshore risk losses in 2020, and most recently aviation in 2021.
Tom Johansmeyer, head of PCS, a Verisk business, tells InsuranceERM in the past ILWs were written using informal triggers at best, and few were available. However, he says PCS has been able to provide disciplined and robust industry loss reporting to help its clients.
He comments: "We provide independent industry loss estimates for specialty line losses that are then used in ILWs. That allows our clients can actually trade with the confidence. Disciplined, professional loss reporting makes it easier to transact, and it also reduces the risks associated with informal triggers – including the ease with which they seem to be disputed."
