Duperreault lays out reinsurers’ challenges
Reinsurers face multiple challenges in a fast-changing world, Brian Duperreault told delegates at a conference in Hamilton yesterday.
In his keynote address at the S&P Bermuda Reinsurance Conference yesterday, the chief executive officer of American International Group also hinted at the depth of his own challenges in turning around the fortunes of the New York-based insurance giant.
Mr Duperreault said low interest rates were crimping reinsurers' investment returns, while climate change and an increasing frequency and severity of natural catastrophes such as hurricanes and wildfires were hitting underwriting returns.
The industry was also grappling with how to cover cyber-risk and dealing with “social inflation” — a term linked with the propensity of the legal system to make larger awards to plaintiffs.
“There's probably not been a better time to be alive,” Mr Duperreault said. “Crime, hunger, disease, childhood mortality, poverty — all are down globally. Yet we feel things are getting worse.
“In many ways I think that's exacerbated by social media and our own biases. That process has destroyed certain concepts like what is true. We're not sure what true is any more.
“If you don't know what's true or who's truthful, then you destroy trust. The insurance industry is based on the concepts of using truth to make a decision and getting the trust of the people you want to insure. So this is not a great combination for us.”
A string of natural disasters during the past 2½ years had caused uncertainty in the retrocession market, to which reinsurers cede risk, and particularly insurance-linked securities such as catastrophe bonds, he said.
“I'd say the alternate capital market is almost exhausted,” Mr Duperreault said. “We've had trapped capital for three straight years. I'd say that's unsettling for all in the reinsurance market at the moment.
“There could be some withdrawal in response to the trapped capital, but longer term it's a stable market — we'll see.”
Insurance industry veteran Mr Duperreault took over the reins at AIG in 2017. Last year, AIG had significant losses, but he said work to limit exposures has been bearing fruit.
“I just needed to fix AIG,” Mr Duperreault said. “We were doing things in an unprofessional way, taking way too much risk, not pricing it well.
“We had to cut our gross limits, write new terms and conditions and we had to go to the reinsurance markets.”
The support of reinsurers had helped AIG to fix its underwriting portfolio, he added.
Others followed AIG's lead, Mr Duperreault said, which had impacted insurance market dynamics.
AIG reported last week that it swung to profit in the third quarter, generating net income of $648 million compared to a loss of $1.3 billion in the corresponding quarter last year.
Mr Duperreault is a veteran of the Bermudian insurance market, having served in the C-suite of companies including Ace (now Chubb) and Hamilton Insurance Group. He was bullish on the island's prospects as an industry hub.
“The place you want to go to start a new company is Bermuda,” he said. “It remains the premier location for entrepreneurs with great ideas and that speaks for itself. The regulatory climate is excellent — the BMA does a great job.”
Consolidation in the market was a “natural phenomenon”, he said, with the market seeing new formation as well as combination. “It's healthy for the market to see mergers, but it's also healthy to see new entrants and Bermuda has both.
“I think Bermuda has a great future as long as it continues to be innovative and draw capital for new ideas.”
Mr Duperreault also revealed his optimism for a US-China trade deal, a development that would improve international business confidence.
“I was just in China with the US-China Business Council to talk with the Chinese Government about trade, particularly with the US,” Mr Duperreault said.
“When I was there in April, I would say it was a very difficult environment, I was very pessimistic when I left.
“This time I saw a complete change in terms of wanting to get something done. I think you're seeing that play out, let's hope that gets done. But that is phase one of a very long process between two superpowers. But if we get trade stabilised we have a chance of seeing something better.”