With many insurers and reinsurers beginning to shy away from complex emerging risks, captives could be set to take on more of the issues shunned by the traditional market.
This is according to Thomas Houlihan, Regional Head, Americas – ART (Alternative Risk Transfer) at Allianz Global Corporate & Specialty (AGCS), who recently spoke to Reinsurance News about his company’s approach to an increasingly challenging market.
The unprecedented difficulties posed first by the COVID-19 pandemic and then by Russia’s invasion of Ukraine over the past two years have threatened to overshadow emerging risks for some re/insurers.
But Houlihan maintains that “awareness of risk is high” in the market, with recent worldwide events having, if anything, further highlighted the unpredictability of risks, both known and unknown.
“Insurers are keen to understand both in order to properly charge for the protection we provide,” the AGCS executive told Reinsurance News, but added that in some cases this awareness has led companies in the traditional space to avoid emerging risks that pose more unique challenges.
In particular, Houlihan pointed to the growing demand for captive solutions, as clients continue to explore ways of taking on more risk and spending their premium dollars wisely.
“I foresee the captive market – both fronting and structured solutions – taking on more of the issues which the traditional market is shying away from, be it wildfire, ESG or supply chain complications,” he said.
Demand for tailored and non-traditional solutions, such as those offered by the ART division at AGCS, has also been influenced by the hardening pricing environment, Houlihan suggested.
“It continues to push clients to think creatively,” he said. “There is often a way for clients to mitigate their increasing premium spend by taking on more risk, but they need clever structured solutions to give them the cash flow protection they need.”
Houlihan explained that the ART team within Allianz has provided clients an opportunity to take on more risk over a multi-year period on a mono-line or multi-line basis, which has helped clients to stabilize their insurance programs and smooth out the recent and ongoing market fluctuations.
“These solutions typically feature a flat rate over a multi-year period which provides stability and cost certainty over two-three or more years,” he told Reinsurance News.
“They are customizable to fit a client’s needs; for instance, it can take on a lower layer in the liability tower and a higher layer in the property tower, or vice versa. The solutions can also include a variety of loss structuring to allow the clients to mitigate their premium spend.”
In addition to reacting to risks at the forefront of the current market, Houlihan added that the Allianz ART is working to proactively tackle emerging and ever-changing risks such as cyber and ESG.
“We are able to think about these issues holistically as we have underwriting, actuarial, legal, claims and operations experts within our ART team,” he remarked. “Together we are driven to provide clients with individualized bespoke solutions for their current and future risks.”
The Allianz ART team has local underwriters in the US, London, Zurich and Singapore, and is also backed by the multinational capability of AGCS.