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PCS launches Global Terror loss aggregation service

24th January 2018 - Author: Luke Gallin

In response to significant and growing demand from the global insurance and reinsurance market for a third-party view of industry loss estimates for terror events, Property Claim Services (PCS) has launched its latest solution outside of the property catastrophe space, PCS Global Terror.

PCS logoThe new loss aggregation service for worldwide terror events provides industry loss estimates for events with insured physical damage and business interruption losses of at least $25 million industry wide, and reflects significant insurance and reinsurance market demand.

Tom Johansmeyer, Assistant Vice President (AVP), PCS, commented; “Terror has been a difficult risk for the global insurance and reinsurance industry. Accumulations have risen over the past few years as reinsurers have accepted the terror risk into natural catastrophe programs to hold the line on pricing. Transferring the risk cost-effectively becomes tough when the risk bearer isn’t compensated for taking the risk up front. Alternative sources of capital and industry loss triggers may provide a greater opportunity for capital management

Historically, the terror ILW market has been constrained by the lack of a credible, independent industry loss index. We launched PCS Global Terror at the specific request of several clients because they wanted to improve how they manage terror risk, but the tools already in the market weren’t sufficient. We’ve listened closely to the insurers, reinsurers, and ILS funds pioneering coverage for this risk and included their feedback to ensure we would bring a useful and reliable loss aggregation platform to market.”

The launch of PCS Global Terror follows the launch of its Marine & Energy Industry Loss Estimates & Index, which came after the launch of the PCS Global Cyber Index service.

The new tool is designed to provide insurers, reinsurers and other stakeholders with access to an unbiased view of the industry loss for global terror events, and the index can also be used to facilitate reinsurance and alternative risk transfer deals, such as industry loss warranties (ILWs), explains PCS.

Alex Mican, Product Development Manager at PCS, added; “With a consistent, rigorous approach to industry risk loss aggregation, PCS Global Terror should help companies understand losses and transfer risk more effectively. We believe that the launch of this index can help grow an ILW market that could provide access to much-needed capital markets capacity and increase retrocessional activity—two key factors in growing the overall cyber insurance market worldwide.”

PCS explains that while numerous data sources are available for insurance information following a terror event, PCS Global Terror provides a completely unbiased view, making it the only “truly independent loss aggregation platform in the global insurance industry.”

Director of PCS Operations, Ted Gregory, said; “It’s exciting to see PCS grow beyond our traditional property-catastrophe scope. Our specialty lines methodology—developed originally for marine and energy loss events—has demonstrated its effectiveness over the past year. In addition to investigating several marine events, we’ve designated and produced estimates on three in the cyber area.

Across terror and our other specialty lines solutions, the PCS Operations team has produced estimates on nearly 50 events. In addition to validating our approach and capabilities, this volume also demonstrates that PCS is designed to be useful. We set our thresholds low enough to provide a steady stream of information to our users around the world, and that’s the best test of any loss aggregation platform.”

According to PCS, the international insurance and reinsurance sector has responded well to the launch of PCS Global Terror, which was developed with continued support from various industry stakeholders.

Chief Executive Officer (CEO) of Validus Re, Kean Driscoll, said; “The creation and development of non-governmental, private market risk-sharing mechanisms for the protection of losses arising from acts of terrorism requires innovative initiatives like the PCS Global Terror Index in order to bring more capital into the terrorism insurance market. As government back-stops like TRIA/TRIP recede, the private market can provide the solutions and the necessary capacity to cover conventional terrorism risks, and the private market can then function as intended in providing the appropriate pricing and risk mitigation in addressing these risks. We thank PCS for their commitment to expanding the role of the private market in terrorism insurance.”

While David Priebe, Vice Chairman of reinsurance broker Guy Carpenter, added; “The global terror market has needed a reliable, independent index for quite some time. As terror pools continue to increase the sophistication with which they manage risk and capital, reinsurers will need more retrocessional alternatives to support these unique clients. PCS has entered the global terror space at the right time. There’s a market in need and a collection of capacity providers that has expressed a clear interest in writing more terror business—as long as they have the right trigger. It seems PCS Global Terror is that right trigger.”

So far, PCS Global Terror has estimates for 14 events, which includes the 2016 terror attacks southeast Turkey, Brussels Airport, and also the Nairobi mall. PCS states that the full historical database is now complete and ready to be used, as well as the process for developing future loss estimates.

John Seo, co-founder and managing director, Fermat Capital Management, LLC, said; “It won’t happen overnight, but the launch of PCS Global Terror is a good and necessary start to the formation of what we, as a society, should hope will become the deepest and most informed market possible for terror risk.”

Nick Cook, underwriter, Fidelis Insurance, commented; “Fidelis welcomes the launch of the PCS Global Terror Index in creating a new tool to assist insurers’ and reinsurers’ product innovation in the terror insurance space.”

While global head of origination at Securis Investment Partners, Neil Strong, added; “PCS is an integral service provider to the global reinsurance industry. In addition to their core property expertise, they are driving innovation by providing services in cyber, global marine and energy, and now, global terrorism. In global reinsurance, the power of the collective comes from the scarcity of information that plagues the analysis of new and emerging risks. PCS have been helpful to us in understanding, analyzing, and differentiating these complex risks.”

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