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Descartes Underwriting, the parametric insurance and data-driven risk transfer specialist managing general agency (MGA), has hired former OTT Risk employee Matthew James as its new Commercial Director, UK & Ireland.

James joins Descartes after ten years at broker WTW and then a stint as Head of Business Development in London for the now defunct parametric MGA OTT Risk.

At Descartes, he will be tasked with leading business development activities in London for the firms parametric insurance solutions.

In his time at broker WTW, James worked on structuring novel parametric solutions designed to manage the weather-risk exposures of clients across a range of industry sectors.

He then joined parametric MGA startup OTT Risk, again in London, but that company shuttered its operations in the first-quarter of this year.

At Descartes, James is taking over from Paul Jones, who is leaving the company after a near three year stint, to pursue other opportunities.

“We’re really excited to have attracted someone of Matthew’s experience and ingenuity as the new head of our London office,” explained Descartes co-founder and Chief Executive Tanguy Touffut. “His experience working with clients as a broker, assessing their climate and insurance challenges then crafting parametric solutions, will bring a new perspective to our work. Our restated strategy remains to deliver strong growth in high-potential markets, and Descartes will continue to deliver, in London and around the world.

“I’d like to thank Paul for his contribution to our development over the years. His work, particularly in educating new brokers to the benefits of parametric and developing and distributing coverages for peak peril exposures, has been invaluable. I wish him every good fortune.”

“I am super-pleased to be joining Descartes,” Matthew James added. “They are renowned as a leader in parametric insurance and I’ve followed their growth closely since their birth in 2018. The team of data scientists in Paris and London boasts some serious brains. Their depth of expertise and understanding of climate change’s impact on business is hard to beat. I look forward to working with this team at the cutting edge of parametric insurance, and alongside Ola Jacob and the rest of Descartes’ London team.”

Descartes Underwriting hires OTT Risk’s James as Commercial Director, UK & Ireland was published by: www.Artemis.bm
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In a string of research reports, the World Bank Group and European Commission call on governments across Europe to utilise more in the way of disaster risk transfer and insurance to reduce the pressure from weather and natural perils on budgets, including the use of catastrophe bonds to access capital market investors for reinsurance risk capital.

The conclusion of the research is that European countries are retaining far too much of their natural catastrophe risk exposure, with the lions share of the costs continuing to be dealt with by government and European budgets, while too little is transferred to insurance, reinsurance and institutional investor markets.

The World Bank and EC reports state that the continent “needs smart investments to strengthen disaster resilience, adaptation and finance response to disaster and climate risks.”

With Europe seen as warming faster than any other continent, the pair say it is “highly vulnerable to the increasing risks associated with climate change.”

“2023 was the hottest year on record with disasters across Europe costing more than €77 billion. Projected costs of inaction in a high warming scenario could reach 7 percent of EU GDP,” they explain.

“Disasters are devasting for everyone, but can disproportionately impact Europe’s most vulnerable communities, increasing poverty and inequality,” Sameh Wahba, a Director at the World Bank said. “Without adequate systems, these events can erode development gains. There is still time for European countries to take actions that will protect people’s lives, infrastructure, and public finances from disaster and climate change impacts, though there is a narrowing window of opportunity to take action.”

Investment in resilience is a significant focus of the work, with many critical sectors of the European economy seen as exposed to multiple natural hazards.

“Investments in prevention and preparedness are urgently needed at all levels, starting with critical sectors that provide emergency response services,” Hanna Jahns, Director of the European Commission Humanitarian Aid & Civil Protection unit said. “The needs are significant and the pressure on the EU and government budgets is high. Going forward we need to invest in a smart way, prioritizing the investments with the highest resilience “dividends.””

They urge the use of risk and climate change data and analytics, to help in prioritising actions and to select the most impactful prevention, preparedness, and adaptation investments.

In Europe, climate change adaptation costs up to the 2030s are thought likely to be in the range of €15 billion to €64 billion annually, underscoring the significant investment required.

“There is a significant gap in adaptation financing in Europe,” explained Elina Bardram, Director, Directorate-General for Climate Action. “Closing it requires a major scale-up of public, private, and blended finance. Investment planning and financial strategies are not yet adequately informed by an understanding of the costs of climate change adaptation at national and EU levels. This needs to change.”

Where the reports become most relevant for our readers is around financial resilience.

The World Bank and European Commission reports state that, “too much of the disaster and climate risk is managed through budgetary instruments at the EU level and by EU Member States, with gaps concerning pre-arranged funds and the use of risk transfer mechanisms, such as risk insurance. ”

In seeking to maximise societal benefits from investments made, the use of risk transfer alongside this to cushion the costs of climate and natural disasters are seen as key.

Public finances are in some cases being stretched by multiple natural disasters each year, so upfront risk financing and transfer can help to lessen the burden on the budgets of European countries and their populations.

The reports identify funding gaps for major disasters and note that should countries face multiple major events in a year, the impact could drain funding at the EU level (as well as countries specifically).

As a result, the reports state that, “Countries in Europe need to enhance their financial resilience through better data utilization and innovative financial instruments, including risk transfer to the private sector.”

Here, catastrophe bonds are highlighted throughout the reports, as tools that can aid in preparing for financial impacts and enhancing the ability for Europe to fund the response to disasters.

The capital market is seen as one source of risk transfer that Europe should consider.

“At present there are no risk transfer products at the EU level or in the case study countries, and consideration should be given to their incorporation in future DRF strategies,” the report explains.

Citing the use of catastrophe bonds by US utilities for wildfire risk, the reports suggest a potential role in Europe.

“CAT bonds as a risk transfer mechanism are less common in the EU and should be further explored once risk models are available to see if this could provide a cost-effective option to manage the risk of wildfires,” one of the reports says.

Both index and parametric insurance techniques are also suggested as applicable to the disaster funding gaps faced in Europe, as these can help to make for responsive risk transfer tools, that can help in financing recovery quickly after disasters occur.

The European Union Solidarity Fund (EUSF) is seen as a financial structure already in existence that could be supported better by risk transfer.

One of the reports states, “The existing EU level instruments take time to disburse, which may delay emergency response. Due consideration should be given to the introduction of a EU level instrument to provide a top-up to national governments to help them finance emergency response. Such an instrument could be embedded within the European Union Solidarity Fund (EUSF).”

Disaster risk financing and transfer tools and techniques can help European countries and budgets reduce their liabilities after disaster strikes, including through responsive techniques and by tapping the capital markets.

The report continues, “A parametric risk transfer instrument — e.g., a catastrophe bond — could be introduced to secure private capital when needed. This approach would recognize the significant opportunity cost of holding reserves at the EU level and instead structure an additional instrument to release finance into the EUSF when severe events occur.”

The report uses the example set by Mexico, in its use of private insurance, reinsurance and capital markets through its catastrophe bonds, as setting an example that Europe can draw from.

The World Bank sees Mexico as “setting the standard” for disaster risk management through its use of financial instruments such as cat bonds.

The reports go into much more detail around how Europe can put in place safety nets, both for its budgets and for its populations, while making the best use of modern financing techniques, risk transfer tools and the appetites of private and capital markets.

It’s encouraging to see the discussion on Europe continuing, as in the last year we’ve also seen the European Central Bank (ECB) alongside a macro-prudential oversight body it operates, the European Systemic Risk Board (ESRB), calling for greater use of catastrophe bonds to address the insurance protection gap and mitigate catastrophe risks from climate change in the European Union.

World Bank & EC call for scaled up European disaster risk transfer & cat bonds was published by: www.Artemis.bm
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When global reinsurance firm Swiss Re announced its first-quarter results last week, the company also notified shareholders and markets that it intends to withdraw from its iptiQ business, a tech-focused initiative that effectively brought the giant balance-sheet of the reinsurer much closer to the risk.

Having a background (in a previous life) in technology, e-commerce and finding ways to match capital with sources of demand in the most direct and efficient ways possible, I was always a fan of the iptiQ strategy.

I’ve described it before as Swiss Re “finding innovative ways to source risk as directly as possible” and while Swiss Re always called its iptiQ digital platform a B2B2C strategy, I’ve always viewed it as an innovative way to “white-label the Swiss Re balance-sheet for third-parties that can originate risk.”

iptiQ allowed Swiss Re to bring its risk capital and underwriting rules much further forward in the markets value-chain, though the use of technology, API’s, embedded strategies and partnerships, really all very typical e-commerce techniques, but less typical in wholesale capital financing like reinsurance.

By white-labeling the Swiss Re balance-sheet, business rules, underwriting and pricing, then making them available to partners through the iptiQ tech platform, the reinsurance firm was also bringing the end-client much closer as well.

Just a few years ago, Christian Mumenthaler, the outgoing CEO of the company, had said that offering things outside of pure capital transfer, such as iptiQ, was a core strategy, saying that these initiatives were “a differentiator, compared to just this traditional, more commoditised reinsurance.”

Back then, iptiQ was seen as one of the crown jewels for an expansive Swiss Re, a way to do more business directly, sourcing risk premiums more directly from the end-customer, shortening the market chain and embedding the company values and capital resources within partners business models.

Mumenthaler himself had said that capital was not the main value proposition in reinsurance, it was just an entry ticket to the fray, while expertise, service and innovation would drive success.

As the iptiQ business was growing and Swiss Re’s focus on alternative capital and insurance-linked securities (ILS) investors had been rekindled with the expansion of its Alternative Capital Partners (ACP) unit and launch of dedicated ILS funds, we had described the iptiQ strategy as having:

“…the potential to become another source of risk for Swiss Re and its third-party capital partners, expanding the reinsurers reach and ultimately creating a bigger mouse-trap for risk.”

Fast-forward to 2024 and iptiQ is no longer a core focus, in fact it’s seen as an initiative to withdraw from by Swiss Re.

It’s important to note here, that Swiss Re is set to maximise as much value as it can from iptiQ, as it withdraws and potentially sells it as a whole or in parts, which could be quite lucrative given the entire venture was created and built in-house from scratch and you could see any buyer maintaining a relationship with the reinsurer and perhaps even some level of access to balance-sheet capacity.

Now, with CEO Christian Mumenthaler leaving Swiss Re after 25 years and Andreas Berger stepping in to that position from July 1st, Mumenthaler made a last appearance at the quarterly analyst call recently and explained his view on the planned withdrawal from iptiQ.

Which gave some insights into how Mumenthaler and Swiss Re thinks about the reinsurance market today, versus how the landscape looked just a few years ago.

Mumenthaler explained the backdrop to the creation of iptiQ during the analyst call, “There was a time where there was a significant anxiety around reinsurance and low-interest rates and capital flowing in. Remember, in about 2017 after the big nat cats in the US, for example, pricing really didn’t react.

“So, it was really a question of, how is this whole value-chain going to develop and where will we play as Swiss Re in the future?

“That’s the time, I would argue you need to start to build strategic optionality and think about different places in the value-chain and have options in also the ACP (Alternative Capital Partners) space.”

Next, Mumenthaler explained why the context has changed today and why this makes iptiQ less attractive to retain, for the global reinsurance firm.

“What has changed is really, in the last one and a half years or so, a very strong interest rate increase ending this huge phase and stopping the capital flow, which was relentless coming from outside into the reinsurance business,” Mumenthaler said.

Continuing, “So, that means the coop is much more secure and the other thing that has changed is that, on the insurtech side, while things are developing, they are developing more slowly and there’s no real disruption to be seen.”

Going on to say, “So the question is not whether it can fundamentally be a good business or not. It is a question of, does it fit as part of our long-term future, does it fit with us?

“There I have to say, I think in another context, the sense was yes, this is a strategic optionality, we need.

“But, in the current context, I think the honest answer is, it’s very hard to see a future where we will need this, that’s more honest to say.”

Here, it’s worth pointing out, that Swiss Re’s reinsurance business has been expanding through the recent hardening of the market and now with stability largely the current market dynamic, profits look set to be attractive, loss activity and legacy effects allowing. So it’s perhaps not surprising the focus has changed, alongside this change in context and market dynamic.

Mumenthaler said that, at the time of iptiQ’s planning and launch, “We felt there was a very strong case for it.”

But given the changed dynamic in reinsurance in 2024, “Let’s be open that this is not a fit with us for our long-term strategic future. I can’t foresee a huge impact on us, so this is going to be managed for value.”

It’s really interesting to hear Mumenthaler’s viewpoints on this, as the changed dynamics he refers to are a lot to do with what drove the significant softening of reinsurance rates, especially in property catastrophe risks and also the growth of the insurance-linked securities (ILS) market.

But, perhaps it was not the growth of ILS capital that disrupted things and drove the reinsurer to explore initiatives such as iptiQ, rather it might have been the fact that all the major reinsurers of the world lowered their pricing, relaxed their terms and became far more competitive during that soft market phase, almost as a response to the rapid expansion of ILS and alternative capital.

Today, the ILS and alternative market is at least the same size, or bigger, and far more embedded in reinsurance than it had been back in 2017 and prior.

The main difference being, that ILS capital is now accepted as a stable, complementary, necessary capital extension and source of protection for the traditional industry. Not something to be afraid of in case it rapidly ate your lunch, so to speak.

The overall insurance and reinsurance industry has matured and learned to harness the appetite of institutional investors, to its benefit and we now stand with a much more robust capital framework for the industry today, than we did a decade ago thanks to ILS products and investors.

Will the dynamics ever return that could drive reinsurers to again seek to be innovative in bringing their capital right to the forefront of the market chain?

Quite possibly, in fact we do see this in many discrete areas, but for now we appear to be in a more balanced status-quo, between traditional and alternative, perhaps helped by the new balance in risk bearing between primary and reinsurer.

It won’t last forever, but finding a comfortable middle-ground where both sides flourish has been beneficial for profits and returns all round, meaning there are motivations to sustain the way traditional and alternative interact with less direct competition today.

All that said, it’s surely just a matter of time before some innovative company (maybe even Swiss Re) finds new ways to connect its balance-sheet capacity to burgeoning sources of risk far more directly (API’s to connect capital, algorithmic business rules to define the underwriting, anyone?).

The (reinsurance capital) context has changed: Mumenthaler, Swiss Re was published by: www.Artemis.bm
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CatX, a digital catastrophe and parametric risk exchange start-up, has launched a new artificial intelligence (AI) tool named Catamaran, which can create and analyse a reinsurance submission then provide rapid feedback on investor interest and pricing.

The stand-alone artificial intelligence-powered tool can be used by brokers and underwriters to prepare high-quality structured reinsurance submissions.

With the Catamaran AI, this can be achieved by uploading any existing documentation or modelling files, while the AI model can extract any data point to populate a digital submission that can be used to present risks to investors or reinsurers, CatX explained.

Most interesting though, is the fact Catamaran can then provide feedback on whether there is interest from the institutional investors using CatX’s platform in offering capacity to support the reinsurance deal.

In addition, the Catamaran AI can also provide indicative pricing, to support investor and reinsurer decision-making.

The Catamaran reinsurance submission tool can also provide an export of the information in a manner compatible with standard insurance file formats, such as MRCV3 or ACORD, CatX said.

CatX hopes that, with the use of Catamaran’s AI technology, the structured submissions can “help to make insurance opportunities appealing to a wider range of investors.”

Thanks to recently announced partnerships, CatX’s platform also allows users to run third-party risk models from providers such as RMS and Cybercube, so that risks can be presented in a more investor-friendly format.

Going into more detail CatX explained, “Investors and reinsurers will be able to use Catamaran to analyze incoming submissions and manage transaction pipelines. Investors can run analyses to extract key information about underlying portfolio and modelling data. They can also compare versions to identify similarities, differences, or changes in conditions and wordings. On the CatX platform, opportunities are matched with funds that define their investment preferences across minimum rates, cedents, underwriters, regions, and perils.”

“We have seen first-hand how effective structured digital submissions can be in securing better-priced capacity from institutional investors. They will help to grow the alternative capital market through enhanced transparency which supports decision-making and helps to attract a broader investor base,” explained Benedict Altier, CEO of CatX. “Artificial intelligence will play a key role in helping the industry improve standardization, while still requiring underwriters and brokers to review key details to ensure accuracy.”

“With Catamaran, we are not only improving the quality of submissions but also paving the way for more advanced underwriting processes,” added Lucas Schneider, CTO of CatX. “Our machine-readable submissions are designed to facilitate algorithmic underwriting, ensuring that opportunities are accurately matched with the right markets.”

“Catamaran is the easiest way to bring submissions to new capital sources. The tool can automatically build a comprehensive deal page containing structured transaction information, contracts and modelling files,” Felix Terpstra, Lead Engineer of CatX also said. “Automating the basics allows underwriters and brokers to focus on getting the details right, therefore producing higher quality submissions with quicker turnaround times.”

It’s a very interesting addition to the CatX platform offering, but perhaps a first step away, or slight detour, from the initial goal of becoming a risk placement and exchange tool, to connect risk to the capital markets.

A number of attempts to create true risk exchange functionality for the reinsurance market have been stymied by brokers in the past.

So, positioning to add value that can support the broker community’s operations is a shrewd move, as that is the best way to gain traction in reinsurance, by supporting the broker processes and making their lives easier, while allowing them to continue owning their client relationships.

It’s a particularly delicate balancing act, to innovate in the reinsurance transaction placement and syndication space, while not stepping on broker toes.

CatX launches Catamaran AI, provides feedback on investor interest & pricing was published by: www.Artemis.bm
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Porch Group, the owner of insurer Homeowners of America Insurance Company (HOA) which was impacted by the Vesttoo reinsurance letter of credit (LOC) collateral fraud, has now taken the step of suing broker Gallagher Re, claiming it “grossly mismanaged” the administration of the reinsurance.

As we reported last week, Porch Group filed a law suit in New York against China Construction Bank Corporation, over the Vesttoo reinsurance collateral fraud, accusing the massive Chinese bank of “enabling its personnel to perpetrate a colossal fraud” on the plaintiffs.

Now, as the company looks to recover damages it says total more than $100 million, Porch has directed attention also to its reinsurance broker, effectively claiming that its security as a counterparty and of the collateral supposed to be underpinning its reinsurance deals was not properly managed.

Porch states that Gallagher Re’s job was to secure it reinsurance coverage for its subsidiary Homeowners of America Insurance Company (HOA) but that it “grossly mismanaged” the administration of a new reinsurance facility that was established under Aon’s White Rock structure and that was supposed to have been backed by Vesttoo.

Interestingly, Porch stated in its lawsuit that there were “numerous red flags that Vesttoo and China Construction Bank… were unreliable.”

Stating in the case that has been filed in Dallas County, Texas, “Gallagher ignored critical red flags that would have warned any reasonably diligent insurance broker that the reinsurance contract arranged by Vesttoo and purportedly backed by a letter of credit issued by China Construction Bank was unreliable.

“Despite a clear contractual obligation to obtain written evidence of China Construction Bank’s agreement to guaranty reinsurance risk directly from China Construction Bank, Gallagher failed to do so, both in late 2021 when the 2022 contract was negotiated and in late 2022 when it secured the renewal contract and a new letter of credit for 2023.”

Porch even claims that Gallagher Re turned a “blind eye to red flags” and that the reinsurance broker “utterly failed to meet its most basic obligations to HOA under the parties’ contract and Texas law.”

“Gallagher’s contractual breaches and professional malfeasance caused HOA to suffer catastrophic losses when the reinsurance facility Gallagher arranged and administered suddenly went up in smoke,” Porch’s law suit states.

When the Vesttoo letter of credit (LOC) fraud scandal broke into the news and it became clear no collateral of any worth was underpinning HOA’s reinsurance deal with the insurtech, Porch was left with the resulting costs.

The company notes it had to “write off $48.2 million in losses, provide tens of millions to HOA in emergency capital funding, and obtain more expensive alternative coverage,” to fill the gaps it now claims were “caused by Gallagher”.

“Because of Gallagher’s breaches, Porch has sustained more than $100 million in losses, including the loss of funds released from the reinsurance account as a result of Gallagher’s authorization and failure to perform due diligence, the costs of losing its expected reinsurance coverage, the costs of alternative insurance coverage, the payment of millions of dollars in unearned commissions to Gallagher, the precipitous decline in Porch’s enterprise value from the crisis, the costs of heightened regulatory supervision, and attorneys’ fees that will total millions of dollars through trial. By this action, Porch seeks to recover those losses from Gallagher,” the company states in its law suit filing.

This isn’t the first lawsuit against a reinsurance broker in relation to the Vesttoo fraud, of course. The case brought against Aon by fronting specialist Clear Blue is also ongoing.

It’s worth also recalling here, that Porch agreed a $30 million strategic arrangement with Aon, that included releasing all claims related to the Vesttoo fraud that it had against the broker.

The Vesttoo fraud has of course raised questions over counterparty and collateral security responsibilities, which some of those damaged by the fraud were always going to try and seek recoveries for, with reinsurance brokers one of the more predictable avenues for this to be pursued.

Of course, with Vesttoo in bankruptcy and what little funds were left in the insurtech’s bank accounts either distributed in small settlements to some cedents, or having gone to pay legal bills, there is no other avenue to turn to where damages of this scale could be pursued anyway.

As we said last week in our article on Porch’s lawsuit against China Construction Bank, “It stands to reason that, given the extensive financial damage cause by the Vesttoo reinsurance collateral fraud, additional law suits will come to light over time, as those that faced damages look to recover some of the value lost.”

But, it remains to be seen how successful these legal actions are, when all parties in the reinsurance market value chain that touched these transactions appear to have been equally-duped by the fraud that occurred. No doubt we’ll see more legal action before the saga disappears from headlines though.

It was just a matter of time until more legal activity emerged. Although, we are still waiting for a criminal law focus to emerge, as there are parties that perpetrated this fraud that continue to avoid the legal spotlight, for now.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.

Porch sues Gallagher over brokers’ role in Vesttoo reinsurance transactions was published by: www.Artemis.bm
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