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During a debate on the state of the insurance market at the 22nd Rencontres de l'AMRAE in Deauville, France, carriers also stressed the importance of further innovation to meet the evolving needs of global programmes.
In a quest to reduce costs and expand their coverages, a growing number of corporate buyers have used cat bonds to transfer risk.
Philippe Rocard, CEO of AXA Corporate Solutions, said that although cat bonds bring interesting possibilities they are potentially problematical. "They have limits, as any other financial vehicle", he said. "The index that is used in the cat bond may not be triggered when the buyer suffers large losses in its facilities", he said. "Also, cat bonds add volatility to a balance sheet, and bond investors may be less keen on paying losses than insurance companies, which are used to doing so."
There is no doubt however that cat bonds have emerged as a solution for buyers with fast-evolving needs. The insurance bosses on the panel agreed that it is necessary to introduce ever more innovation to meet the challenges faced by multinational companies today. "As a result of the financial crisis, fiscal issues have gained importance and have been exacerbated", said Kadidja Sinz, Country Manager for XL in France. "Around the world, including emerging markets, there has been a desire to manage economic growth with new laws. In developed markets, the emphasis has been on the protection of consumers, the environment and so on. So legal issues have increased everywhere."
Such changes imply that the landscape is evolving and that global programmes will have to adapt. "We may see the emergence of new players in the market", she said. "Perhaps the distribution of responsibilities between traditional international insurers and large insurance companies from emerging markets will become more difficult when a global programme is being set up."