Chief executive of PartnerRe Global Emmanuel Clarke answers our questions on underwriting risk in the Qatar market
What lessons have we learnt from 2011?
2011 was an exceptional year for the reinsurance industry. It was an unprecedented year for natural catastrophes – what we call a ‘black swan’ year. Most of these catastrophes came from outside the USA, which poses the question of whether we have assessed diversification well enough. I think it has been remarkable that the industry has been able to weather all these events, being in great shape with no defaults on payments. As underwriters, we always need to ask – what can we learn?
Every one of these events has been exceptional, unusual and complex. Japan was complex because of the tsunami and the radioactivity of Fukishima; New Zealand was exceptional because we weren’t expecting an earthquake there and because there were so many aftershocks. As catastrophe reinsurers, we know all about wind events but unfortunately with earthquakes we can only learn about them when they happen.
We are underwriters, we are not just models or computers. We base our underwriting on common sense and business sense.”
The bottom line is: be careful of what the models say. Models are just one output; and models are wrong by definition. And especially in all these cases, the experience has been beyond the models. I think common sense must prevail. We are underwriters, we are not just models or computers. We base our underwriting on common sense and business sense.
How can Qatar benefit from the diversification of risk?
Look at the Middle East, zoom in and you have the Gulf. Zoom in again and one of the countries is Qatar. It is a fascinating area and Qatar has a leading role. If you look out the window, there are all sorts of construction sites – billions or trillions of dollars worth. These construction projects need insurance and reinsurance. They are too complex to be absorbed by local capacity so that is a big opportunity for reinsurers. By creating development, they bring wealth to people. Because people get wealthier, they insure and they have assets they like to insure – this is insurance penetration growth. With the infrastructure and the penetration of personal lines, this is a really dynamic area.
There is greater supply than demand, creating an imbalance, which drives rates down. But there is a lot of risk out there and the size of risk we are talking about is just enormous.”
What is the biggest challenge for the region?
In the short term, it is the level of rates and about making sure the level of profitability is sustainable; it is a very competitive area. A lot of people see it is an attractive area and a lot of people come with capacity. There is a growing amount of dollar capacity stationed here so there is greater supply than demand, creating an imbalance, which drives rates down. But there is a lot of risk out there and the size of risk we are talking about is just enormous. So we have to keep a foot on the ground and make sure we apply common sense to all of this. When there is no lose, it is fine. But this area has to be sustainable long term.