The Bank of Montreal, which underwrites reinsurance including catastrophe risk exposure through its BMO Reinsurance Limited (BMO Re) vehicle in Barbados, is to pull-back, citing climate change and inadequate returns.
During the Bank Of Montreal earnings conference call today, the firms CEO Darryl White explained that after recent heavy catastrophe loss years the reinsurance sector no longer looks as attractive to it, the Canadian Financial Post has reported.
The Bank is set to wind-down its property and casualty (P&C) reinsurance operations completely, the report suggests.
BMO Re has long underwritten catastrophe exposed property reinsurance and retrocession, so it’s no surprise the firm took its share of recent global losses from storms, wildfires, typhoons and other catastrophe or severe weather exposure.
BMO had previously said it wanted to achieve more consistent results from its reinsurance arm, but now the CEO has said it will shrink this part of its operations.
White explained during the earnings call today, “In light of the environment in the reinsurance sector performance is no longer meeting our risk-return expectations, so we’ve made the strategic decision to exit the majority of this business.”
CFO Tom Flynn is reported to have further explained that the property casualty reinsurance business would be wound down, adding that the move, “reflects returns in the business coming in at a level below our expectations and a higher level of variability in results, partially due to weather-related claims.”
The large catastrophe loss events of 2017 and 2018 have made the reinsurance business more volatile, Head of Wealth Management Joanna Rotenberg is reported as saying.
“We are expecting and have continued concerns that with climate change we’re just going to see more frequent and higher claims, so we didn’t feel like there was a good symmetry between risk and reward,” Rotenberg said.
The active hurricane seasons in 2017 and 2018 hit BMO Re’s Barbados operations and drove earnings volatility that the Bank of Montreal itself felt.
It seems these losses and this volatility have been too much for the Bank to continue an operation in a sector which is not core to its strategy, hence the pull-back from property and casualty reinsurance underwriting.
For the Bank of Montreal, property and catastrophe exposed underwriting has always been a relatively small part of its global operation, hence it’s not surprising it would choose to pull-back from this area of reinsurance after consecutive years of volatile results.
