SRCC (Strikes, Riots, Civil Commotions, and Civil Unrest) as a product does work, but the way some insurers are underwriting it does not, according to IQUW’s Dan Callow, who stated that this is due mainly due to terms & conditions as well as a lack of discipline.
As a peril, SRCC is becoming more relevant than ever before. 2024 is the year of elections, with around half the world choosing a new government, including a number of countries that are as populous as they are polarised, like the United States.
“The US is a petri dish for potential civil unrest, with the re-emergence of Donald Trump as the likely Republican candidate carrying the baggage of his current courtroom battles, mixed with higher interest rates and inflation,” Callow explains.
“Beyond the US, there are elections from India and Ghana to Mozambique, South Africa and Senegal – never before have so many people have had the opportunity to vote in a single year,” he added
Speaking with Reinsurance News, Callow also pointed out that, simultaneously to large scale voting, there are also numerous conflicts currently going on around the world, such as the wars in Ukraine and Gaza.
“Frequently, these conflicts have knock-on effects, such as supply chain issues and food shortages or other groups, expanding the war beyond its initial boundaries. Regionally too, wars can often lead to civil unrest in neighbouring countries, as they move to support either side, which can also increase the likelihood of an insured event occurring,” Callow said.
Adding: “All in all, SRCC is an extremely relevant peril in the market right now. From a client’s perspective, they should fully understand the cover they are buying and this year more than ever they should look to the political violence market to buy it specifically, rather than relying on a sometimes silent all risk policy, as it’s a really crucial product.”
Despite its growing popularity, according to IQUW’s Political Violence (PV) and War Lead Underwriter, SRCC as a product is facing some challenges, a few having to do with some changes the market has seen recently.
Callow explained: “2023 saw reinsurers reposition themselves, creating a huge mismatch between the level of risk the direct market is exposed to and overall premiums. The challenge is that the rating environment hasn’t changed sufficiently to account for the change, and it doesn’t have enough premium to pay for attritional losses, let alone the major cat events.
“The total limits deployed globally are still enormous, which are many multiples of the reinsurance insurers are purchasing – it just doesn’t make sense and the rating environment has to change to support the market.
He added: “Another big change is the introduction of an SRCC risk code within the PV market for Lloyd’s syndicates, which is greatly needed. This came into effect 1/1/24. However, because it has only just been introduced, we are several years away from getting any meaningful data from it.
“The other downside is that it’s only the PV market that’s using it, whereas there is a lot of exposure tied up in the property and marine markets that we can’t break out and analyse. In addition, there is less delegation in the market for this peril but it’s still commonplace, which means the market as a whole does not have as good a handle on these aggregates as it should.”
Another challenge SRCC is facing is reinsurers moving away from that line of business. This was more notable during the January 1, 2023, renewals, following Russia’s invasion of Ukraine.
A number of reinsurance programmes were renewed, but at the same time, the reinsurance market made wholesale changes to event definitions in lines including terrorism, SRCC, and war.
According to Callow, this resulted in the direct market being left to keep a lot more of the risk. Previously, these kinds of events could be stacked into one event in a reinsurance tower, now they would be considered different events that may not stack at all.
“There was some improvement at the 1 January 2024 renewals for some markets, with slightly improved definitions, but event definitions are still a lot broader than they were two years ago and the direct market is exposed to significantly more than it was in the past,” Callow noted.
Adding: “From reinsurer’s perspective, with the current geopolitical situation, major riots having happened in almost every year for the last five years, added to the current conflicts, they will be reluctant to change too much in the short term. The cheap reinsurance capacity of three or four years ago has definitely disappeared, but going forward we believe it provides an opportunity for markets to differentiate themselves and show why they’re good at what they do and have the controls, the strategy and can hit a plan.”
Callow highlighted that, SRCC re/insurance is a product that does work, but the way that some underwrite it does not. This mainly has to do with the existing terms and conditions, as they are not fit for the current global environment.
He continued: “The PV market is priced and set up to be a cat market, but the current terms and conditions mean that attritional losses can be expected. Furthermore, there’s not enough income to support that as well. One of the big issues that we still see, which is a soft market phenomenon, is people giving per-occurrence SRCC cover. The event definition on direct policies is generally 72 hours, so by giving per-occurrence, you’re reinstating that limit every 72 hours.
“At IQUW we only write SRCC on an aggregated basis so that we know that there’s a hard stop. However, we continue to see people giving reinstatements in the same event, which doesn’t tie up with their own reinsurance. So, the issue that remains is a lack of discipline.
“With the amount of exposure that is now staying in the direct market because of the reinsurance changes, we were expecting to see two things: the total limit in the market reducing and the rating increasing. However, it seems that some insurers have just deployed more aggregate to pay for the higher reinsurance costs, which just means increased net exposure. It cannot continue.”
He concluded: “IQUW writes a global portfolio, and we will deploy aggregate in difficult territories, such as South Africa and Chile. We will underwrite the risk to an appropriate level and will not delegate to others to write it on our behalf. I think other markets are gradually becoming more disciplined, but there remains a fear of losing income when markets should actually be developing a clear underwriting strategy. Now is the time to underwrite SRCC properly – not just for market share.”
