Hiscox Re director of underwriting Megan McConnell says there will be correlation in outperformers and to who is unwilling to take on additional risk

Valuations in the insurance linked securities (ILS) space need more attention, according to Megan McConnell, director of underwriting in London at Hiscox Re. This is because despite a first half of 2018 notable for its lack of meaningful catastrophe events, ILS funds have continued to bleed money.

“These funds have lost money in 2018 despite no activity, so we’re a bit surprised this hasn’t been talked about more,” McConnell told GR. “I think there’s a systemic problem with valuation. It’s more acute in the ILS space.”

Funds such as CATCo boosted reserves this year for 2017 catastrophes, due to ongoing deterioration on losses sustained last year. Some of these ILS funds seemed unprepared, despite it being clear that such a deterioration would happen, McConnell noted.

“This deterioration has been primarily for Hurricane Irma losses, and it was reasonably well known that we were going to see a loss creep, but apparently some people didn’t initially reserve for it,” she said.

She noted that Hiscox had seen loss creep coming, with deterioration falling within the re/insurer’s estimates for incurred but not reported claims costs.

Reporting requirements might leave ILS funds less prepared, she thinks. “I suspect it’s due to tight reporting constraints. There’s more pressure on them to report a reasonable result,” said McConnell.

She thinks those underwriters that outperformed the market last year will be reluctant to take on additional risk at coming renewals – with risky business instead going to those players still licking wounds from last year.

“There’ll be a high correlation between outperformers and those willing to take on additional risk,” McConnell said.

This year’s Monte Carlo Rendez-Vous has lacked a common theme, she thinks, and there is continued uncertainty about Hurricane Florence, intensifying in the mid-Atlantic, expected to make landfall later in the week. 

While accepting things could change rapidly, McConnell doesn’t expect it to be a major loss-producing storm. “If it heads to that mid-Atlantic region – Virginia and the Carolinas – there is nowhere near as high concentration of values as, say, New York or Miami.

McConnell relocated to London and to reinsurance in March, having previously worked as the active underwriter for ICAT Lloyd’s Syndicate 4242, but based in Boulder, Colorado.