Catlin: named perils a “safer” form of coverage

Stephen Catlin, the founding chairman and CEO of specialty P&C (re)insurer Convex, has entered the industry debate surrounding all risk coverage versus named perils by saying he has a strong sympathy for the latter position. 

As noted by The Insurer earlier this month, the current shadow boxing ahead of the 1 January renewals is seeing tentative moves by some reinsurers to restrict cat XoL coverage to named perils as opposed to broader all risks terms, where cover is presumed unless excluded or sub-limited. The trend is also being seen in the hardening specialty/commercial primary markets, where insurers are looking closely at coverage terms in addition to pricing. 

Noting that he is both “a buyer and a seller” of reinsurance, Catlin explained: “Named perils is a much safer way of giving cover. You’re more certain as to what you’ve got. If you go into a more broad form you don’t really know where you are”.

Catlin continued: “Ostensibly you could say that is to the buyers’ advantage but if there is uncertainty – as we saw with business interruption claims post Covid-19 – [then] is that really to the benefit of the client?

Alluding to the recent myriad of court battles over disputed Covid-19 coverage, he added: “I buy insurance so that if something happens then I can recover from it quickly. I don’t want to spend 10, 15 years finding out whether I can recover or not.

“At the very least the lesson has to be learned that ambiguity in policy wordings in a court of law will almost always go in favour of the policyholder and go against the carrier. And that’s probably fair. We’re deemed to be the professionals who should know better and the policyholder is deemed to be the innocent man on the street,” Catlin explained.

Asked about the current impasse between insurers and their cat XoL reinsurers over stalled Covid-19 claims – a reflection, some say, of imprecise wordings – Catlin predicted there would be settlements.

“The whole of the reinsurance market kicked the [Covid] can down the road last renewal season. 

“And now you’ve got those in the reinsurance market who think they won’t be paying some of the Covid claims. In my view that is naive. Deals will be struck. There is too much money for it not to happen”, Catlin predicted.

The industry veteran – who built his first P&C insurer Catlin into a $6bn a year global specialty (re)insurer before selling to XL in 2015 – added that as a CEO he felt a compelling duty to his shareholders to always have as clear a picture on risk aggregation as possible.

“As a carrier I personally take the view that one of our prime duties to our shareholders is to look after the downside risk to capital”, he explained.

“Now to do that I have to understand the risks I have on my book and how to aggregate them … otherwise I don’t know. So, from a carrier point of view if you give broad form you don’t actually know what you’re covering, you can’t aggregate it and therefore you don’t know if you’ve got enough capital for the risks you’ve taken on.”

The current drive to narrow coverage was also addressed by Guy Carpenter’s European CEO Massimo Reina in a The Insurer TV interview earlier this month.

He acknowledged the change would “undoubtedly help reinsurers who are keen to align the business they write with the retro protection they buy, which is always on a named peril basis”.

However, Reina warned reinsurers against pursuing the move as all risks cover is “one of the most valuable things they offer their clients” and reminded them that the willingness to provide broader cover is a clear differentiator between traditional reinsurance and alternative capital, such as ILS.

“[It is] a very important barrier for different and newer sources of capital to enter the traditional reinsurance space. We at Guy Carpenter continue to advise clients to hold firm against any attempts to change the basis of coverage to a named peril basis,” the European CEO exclaimed.

Catlin, however, isn’t convinced the issue will fade away anytime soon – and even predicted negotiating momentum might accelerate if capacity becomes tighter.

“This debate will continue for the next two to three years I suspect,” Catlin predicted.

“I suspect there will be a mixture going forward. And capacity – if it does dry up – then we are going to see the market moving more towards named perils than it is today,” he concluded.

Click here to see the fascinating sixteen minute interview in full, where Catlin discusses a whole gambit of industry issues including: the Covid-19 XoL reinsurance impasse; 1.1 pricing; progress on the Lloyd’s Blueprint transformation; the future of systemic risk insurance; the moves to narrow reinsurance coverage and the impact of 2021 climate losses.