It Wasn’t the Big One– Yet

It Wasn’t the Big One– Yet
I was jolted at 3:20 Sunday morning by a 6.1 earthquake. I live about 15 miles as the crow flies from the epicenter of the quake. I woke up as the bed began to shake –noticeable enough to wake me – and then stronger and stronger. The quake went on for about 20 seconds- which actually feels like a VERY long time – and it was a noisy one. You could hear the house creaking as it shook back and forth. I laid in bed thinking –I wonder if this is the big one.   It’s been almost 25 years since the 1989 Loma Prieta Quake which was the last big quake to hit the bay area. I was out of town when that hit – at the national CPCU convention –and trust me –there is no weirder place to be than an insurance convention when a major disaster hits. It was the night of the confirmation dinner and the hotel commandeered every television in the place so the different insurance carriers could meet the rest of their crew, huddle in front of the television and decide what they were going to do.   The shaking got stronger. It wasn’t a rolling motion – it was back and forth. Imagine your bed on an electric toothbrush or an oscillating saw. I was in a third floor bedroom and was reminded of my great grandfather who survived the 1906 earthquake because he was in a top floor bedroom when the hotel he was staying in collapsed, killing almost everyone in it. He rolled under an iron bed as the ceiling began to fall and that was part of what saved his life. (whew! Thanks Gramps for being smart enough to do that.  I kind of like being here.)   We all know that disasters happen. I write and speak regularly on topics such as catastrophe management but it always feels like such a remote possibility that anything will REALLY happen to me. But this weekend, as the house shook back and forth, I realized it has been a while since I checked the contents of my emergency kit, made sure the water supplies were fresh, backed up copies of all my documents to the cloud, or updated my home inventory.   The shaking calmed down and then stopped. Nothing seemed damaged – nothing had fallen over or broken. I turned on the radio and began to listen to see what had happened. At 3 in the morning, it takes a while for the pre-recorded program to be interrupted with real news. But Facebook and Twitter – oh thank you social media – was already live with friends actively posting information from a wide variety of sources. And I was already getting messages – are you okay.   The news came on and one of the first things mentioned – in the first thirty minutes after the quake – was a mention of a large carrier who had already contacted the news station to let them know where adjusters would be, an 800 number and mention that they were already out contacting people. And remember – this is earthquake insurance – most people don’t even have coverage. Talk about rapid contact.   Later that afternoon, I was out to lunch with friends as we celebrated a birthday. The topic of conversation kept coming back to the earthquake. Light comments – “Did you see what happened at Silver Oak? I volunteer to go clean it up – with a straw!) as well as detailed discussions about emergency kits, and what we’ll do in the event that the big one hits.   It wasn’t the big one… for me. But in Napa, it was the big one for a lot of people. It’s times like these that remind us why we’re in this business.

Capital Opportunities

Capital Opportunities
AM Best came out today with a revision for the reinsurance sector from stable to negative as the reinsurance market continues to soften. When it comes to reinsurance, it’s been a buyers’ market. Competition in the global reinsurance industry is fierce as there is significant excess capacity. Reinsurers have experienced lower than anticipated cat losses despite some well publicized events earlier in the year. There’s also been robust use of alternative capital as cat bonds continue to increase.   What this means for carriers is that they have opportunities to take advantage of falling prices and get improved coverage across all lines of business. In addition to low prices, terms and conditions are improving. Carriers are able to purchase increased coverage because of the low prices and lock in multi-year deals for portions of their reinsurance coverage. They’re negotiating more customized reinsurance programs – lasering out specific exposures. And even property cat renewals are getting improved prices and terms. With pressures on growth, carriers who retreated from catastrophe exposed coastal areas in earlier years are reassessing the potential opportunities and looking for tools to help them re-enter a potential growth market.   The question is how long can reinsurers keep this up? Is the bottom of the soft market emerging? Private reinsurance capital is now competing at a level comparable to current government roles in some areas. AM Best isn’t the only rating agency that is posting negative outlooks on the reinsurance market. Primary carriers are starting to look more aggressively to determine if they should consider locking in lower rates and favorable terms for longer periods. Especially as reinsurance becomes even more of a strategic decision since regulators are increasing their use of economic capital modelling. Many carriers find rating agency capital requirements are driving a higher capital constraint and therefore are becoming a leading factor in strategic decisions about how insurers manage capital and make reinsurance decisions.   But reinsurance is a unique area in an insurance carrier typically managed by a small unit with one or two gurus who have the knowledge of the programs preserved in their heads. Although reinsurance programs are becoming increasingly complex, large numbers of carriers rely on excel spreadsheets to manage these programs which are rife for error.     As carriers structure more complex programs because prices and terms are favorable, we’re seeing increased interest in reinsurance software to help manage these complex programs. Modeling potential programs, automating premium and commission calculations, processing complex inurements and improving claims recoveries are helping many find huge returns when investing in these types of systems.