Reinsurance Tutorials #18 - Season 2
Hi everybody 👋
Today we start with our last topic of season 2: Specialty lines
As for the other four, I’ll give an overall introduction while my excellent teammates will focus on :
Sylvie, our star, has been awarded the Space and Aviation.
Laurent, the brave man of the team, will dive into the sea and surf on the tricky waves of Marine.
Clémence, our fearless bright actuary, has been elected to unveil the intricacies of Credit and Surety.
Let’s start! ⏬
According to different reinsurers you will see that their definition/organization differ quite a lot.
Some say that Specialty Lines are the Non-Life LOBs that are not P&C (Property& Casualty).
Other argue that complex LOBs (D&O, Professional Liability) should also be treated as Specialty Lines.
Regardless, from Agricultural to Renewable Energy and the rapidly increasing and soon dominant LOB Cyber, the scope is very wide and continues to increase as new risks emerge.
This time we do concentrate on the above-mentioned Lines Of Business (LOB)
1. Aviation & Space (Sylvie)
Worldwide premium volume for these LOB is quite small and increases and decreases depending on claims experience, price competition and economic activity (number of satellites launched, reduction of commercial flights due to volcano in Iceland, Covid 19…)
For our purpose, let’s take the figures 800 million dollars for Space and 2 billion dollars for Aviation.
In disaster risks scenarios that underwriters establish, one event could easily consume 100% of a yearly worldwide premium. So, be careful!
Aviation started only beginning of the 20th century and civil aviation even later.
- Today it is a major part of modern life for business and private trips as well as for the transportation of cargo. Very large airport infrastructures, dedicated roads and high-speed train networks have been built over the world, hundreds of thousands of employees work within this industry.
- Insurance has followed this growth providing many different insurance coverages : airline liability, airport traffic liability, total or partial loss of an aircraft, passengers’ personal accident (travel PA), machinery breakdown and product liability (for instance, for aircraft engines), grounding of aircraft, etc. So many types not to mention war, terror, WTC
- Disruption through Covid had and still has a major impact on activity of this industry.
- Communications, localization of earth’s resources, weatherforecast with better warning systems allowing for a reduction in human and material losses.
- Scientific researches of all kinds going much beyond my knowledge
- A field of competition between countries with spy satellites…
- As for Aviation, due to the high sums insured and uncertainties associated with the launch of satellites and operations in orbit, a few insurance covers have been offered by our industry and reinsured accordingly.
2. Marine (Laurent)
It may seem strange to consider Marine a specialty LOB, as Marine Insurance was the first type of cover ever provided by the nascent insurance industry.
Although this once dominant line of business has seen its relative importance decrease gradually to a modest size, there has been dramatic changes over the years in the size of risks covered with VLCC, container ships with high sums insured in terms of both hull and cargo, pollution liability...
In addition to ocean-going cargo ships, coastal cargo ships, fishing vessels of all sizes and technology, we have seen a sharp increase privately-owned leisure ships from very simple vessels to high-valued yachts, and when moored at port these vessels represent a high risk of conflagration be it from fire, hurricane, tsunami or other hazards.
3. Credit & Bond (Clémence)
Credit is :
- The key to allow our economic world to work.
- There are a lot of different types of credit insurance : micro-credit, short-tail consumer credit, trade credit insurance with high sums insured, export credit; often covered through dedicated specialized export credit insurance companies that belong to and/or have the support of the state most of the time. There may be political risks attached and contracts may last even more than a decade.
- Credit insurance is diversified and complex, it requires specialized companies and dedicated reinsurance underwriters.
- We can see with :
- the failure of Lehman’s Brothers in 2008 and the ensuing breakdown of the economy and
-the worldwide dramatic impact caused by Covid in 2020,
- how Credit insurance is a necessity and
- how governments are required to create schemes enabling credit insurance companies to continue providing their services to consumers and the enterprises overall thus avoiding a major crackdown of the economy bringing a major financial crisis, social unrest Etc
A Bond is :
- is not a fascinating story like the ones from the famous Brit “Bond, James Bond, call me James”
- It is another way of helping the ongoing of the economy through “performance bonds” which protect the due completion of contracts.
- You have many types of bonds; bid bonds, supply bonds, customs & excise bonds…
- There are markets where bond insurance is quite common like Italy or Canada. There are other markets where bonds are hardly sold and the banks play a dominant role.
Thanks for your attention!
Bye for now 👋
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