Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (ETR:MUV2)

Status Update

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Sep 8, 2020

Before we start, please allow for some housekeeping. On your screen, you can find different windows. Most importantly, the media player where you can see the video stream of all panelists. We won't use the slide area as there won't be any presentation. Very importantly, the Q and A box where you can drop in your questions at any time. I will read them out loudly on an anonymous basis, obviously, and share it with the respective experts. Please don't hesitate to grab your questions at any time. This is important and the basis for this event as we strive for a very interactive discussion. In one window, you can also find the detailed speakers' CDs. For the best performance, please use Google Chrome if possible, close programs and other sessions tabs in the background to make best use of your bandwidth. On the bottom of the screen, you can find a link to register for information about future ILS ART events, but you can also simply drop us an e mail. One last trick, if your picture freezes or the picture of the speakers freeze or something like this happens, simply press F5 and the system will run again or close the program and log in again. So we have roughly an hour to discuss about ILS and alternative risk transfer in a broader context, and I guess it will be a very exciting session today. Let me just mention a few highlights. What did we see in the recent past? Loss prone years 2017, 2018, 2019, three years in a row, the big reload of capital in 2018 heavy redemptions, losses, loss creep and trapped capital affecting collateralized structures and now the uncertainty around COVID-nineteen and the hurricane season is not yet over. I could continue with this list, but we want to start the discussion. So let me do so by briefly introducing the panelists. I will only mention their current role as you may find more information by simply navigating your cursor to the picture of the panelists. Let me start with Ivan Bokhmat. Ivan is a European insurance analyst within the equity research team at Barclays and covers the European insurance sector and non life insurance in The UK. Ivan, you want to say hello? Hello, everyone. Thank you very much. We're very pleased to be here. So next one is Ewald Bohm. Ewald is a Managing Director at AKMEA Reinsurance Company with a long standing insurance and reinsurance background, and he has issued a cat bond earlier this year. Yes. Hello, everybody. I'm happy to be here as well. Unfortunately, we cannot meet in Monte Carlo, but I think this is a very good opportunity to have this discussion. Thank you. Next one, Tom Johansmaier, who is Head of Property Claims Services, our risk insurance solution business and has significantly expanded the PCS reach over the past years. Tom? Thank you for having me into the audience. Don't be shy. Then we have Philippe Gucher, Partner and Global Head of ILS and Capital Solutions at Tiger Risk Capital Market and Advisory, covering all activities around Capital Market Solutions. Thanks, Andreas. I'm glad to be here and looking forward to the debate. The investor perspective today is covered by Adolfo Kiena. Adolfo is partner and co head of Nephila Capital's Reinsurance division and Chair of the Transaction Committee of Nephila, which currently has $10,000,000,000 under management. Hello, everybody. Glad to be here. And Andreas, thank you very much for putting this together in such circumstances. Thank you. The group is represented by Thomas Bloch, member of the Board of Management responsible for Life and Health, Digital Partners and Capital Partners, which, amongst others, comprises Munich Re's retrocession and ILS businesses. And he's right to me. Hello, everybody. I'm very happy that all of you have joined, and I hope we can make it as interesting as these circumstances on a virtual basis allow us to do. So and finally, I'm Andreas Muller, and I have the pleasure to moderate this session since two thousand and nine for eleven years now. So let's jump into the topic, and I would be so feel free and drop the first question to our panelists. And surprise, surprise, it's about COVID-nineteen. And the question is how did COVID-nineteen impact the ILS or ART market so far? And what did or will it change? So I guess, Ewald, would you start with that? Yes. Thank you for this question. Yes. I think it's still very difficult to see what COVID-nineteen will bring us. I think that in the end, COVID-nineteen is something we never expected that would have happened to such an extent that there were this many closures. If the ILS market can offer us an solution will depend very much on the on the price and the demand and supply. So I'm not sure which way we were heading to. Okay. Perhaps, Philippe, you're next one to answer or comment on yes, no, absolutely. Thanks, Andreas. I think from our side, I mean, certainly, COVID-nineteen is, as you mentioned, also clearly already had substantial impact. I think we would expect that to continue and really for kind of a number of different reasons. I think, one, it really creates kind of a supply and demand imbalance from our perspective. I think traditional reinsurers and insurers who, I think, go on the one side, seeing losses from COVID-nineteen. On the other side, We have seen kind of volatility on the asset side as well, which overall, I think, reduces kind of risk appetite and will lead for lead to more interest in reinsurance capacity. I think on the capital side, given that reduced risk appetite, we would expect also traditional reinsurers to have less appetite for assuming that risk. And I think the same is true for ILS markets. I think you mentioned collateral trapping, or I think which we expect to be another substantial issue at oneone, especially in some subsegments like the retro market. I think we have seen some of that at midyear. And then also, I think, on the capital raising side, due to COVID-nineteen, I think things certainly slowed down quite a lot, given that a lot of the end investor segment is heavily distracted, I would say, from managing kind of other issues outside of the ILS space. So in that sense, yes, certainly expect ongoing impacts. And at least from our perspective, I think every segment will be impacted quite differently. I think the Retro segment certainly will see different impacts than, for example, the Capone market, which obviously was impacted significantly less versus the other insurance market or the reinsurance market. Philippe, you already covered the reinsurance industry, all the investors have access to also shed light on how you view the market currently and going forward. Yes. Thank you. Well, it's clear to see that COVID is yet another test for the market as we have seen quite a few in the previous years. It's early to see the final scope of losses, but at least, what we've been tracking from the traditional players, it's been right now between 20 to $25,000,000,000. Clearly, on top of the the usual Nat Cat losses, this will be another heady year. And I think I would completely agree with Philip. The result of that is the pool of capital is, I mean, restricted. There is gonna be yet another, maybe a couple dozen billion dollars of, collateral that's gonna be trapped on the ILS side. There's certainly gonna be losses in the traditional side, and all that would lead to prices rising, particularly in a situation where rather uniquely, the reinsurance market as opposed to other, kind of elements of primary insurance market is seeing increased demand for cover. So, I think for, for one one that therefore, calls for continued hard market momentum. So just one question. I mean, you you touched on on capital raising it well. If you if you do not only look at the ILS or ART capital, could you also share a perspective on other capital like subordinated debt or even equity in that situation? What we have seen in the past several months, I think, invested in a calculation of approximately $20,000,000,000 of fresh capital entering the market. That's half of this is equity, half of this is debt. Some of the the capital increases so far appear to have been defensive, I e companies who are preparing balance sheets for the ability to pay claims associated with COVID. For many others, it has been offensive, I e companies trying to take prepare to take advantage of the market opportunities. It it feels like this capital raising is probably gonna continue throughout the the rest of the year. But so far, you could see that the stock of capital raised has probably been smaller than the extent of even COVID losses that we are we are considering. And we've tried to make a very early estimates of between 30 to $80,000,000,000 of COVID losses potentially. It seems to be crystallizing towards the midpoint of this. So arguably, there will still be some capital removed out of the equation by the end of the year. Okay. Thank you. So we have three analysts left to comment on that. Tom, Adolfo and Thomas, Lars, take it? Maybe I can take it and add a different perspective. I mean COVID-nineteen has caught the whole industry by surprise, and everybody, I think, is aware of that. And the arguments why that is a surprise has been already laid out. What I would like to add is the perspective of us as a reinsurer. When we have when we manage our capacity, our solvency ratio, our earnings volatility, our idea is to have a continuous program with a lot of retro but also ILS partners. You know that we have two sidecars in place. And one thing that we really want to achieve is continuity. Don't want to jump in and out or being jumped in and out by such events and then the uncertainty that this event may create in the investor community. So having a reliable program over years is important to us, and we very much hope that COVID-nineteen will not change dramatically, at least, the risk appetite of the investors. Wolf, would you like to share the investors' perspective with us? Well, I mean, there's no question that COVID became a threw a wrench in capital raising for reasons such as the practicality of of doing due diligence visits, and all that, which which just slowed down the ability to raise money. But a a big question that that is out there is whether people are being compensated for taking this risk. Starting in 2017, we started having a a really poor pricing for and what is the risk that we're very carefully is to make sure that every risk that has been taken has been paid for and that investors have been fairly compensated for it. And I think that is going to be one of the things that is gonna have to enter the conversation. If these covers are gonna are are are gonna happen, are we getting paid? I I I I don't know if I would agree to the point that COVID is a surprise. I mean, we've been having pandemic models since the eighties, I think. The question is, have we been charging? Have the primary rates been taken into account this risk? And that's the one thing to think about. Can I add to Adolfo's comment? Sure. Yes. Not COVID-nineteen in itself is the surprise. It's rather the magnitude of it, and I would say and that is linked to your comment, has it been priced for? And if I may share an example or an estimate, The average of the combined ratios in the contingency business worldwide of the past years, I would say, indicate that it hasn't been priced for. So there's one example at least where we could say it has not been priced for and the magnitude really was a surprise to the contingency line of business worldwide. It's not just pricing that you need to think about with this as well. I think the most alarming thing I've heard from my clients through COVID-nineteen has been deal fatigue when it comes to terms and conditions. So the terms and conditions discussion as a result of COVID, that's no surprise. Everyone knew that was the time. You treat pandemic as natural, is it a natural peril? Fine. The tough part, though, is when you're trying to introduce these new significant and restrictions that we haven't experienced much as a market, how do you do that on a tight deadline? And right now, we're dealing with the unofficial start of the oneone renewal season with this panel, right? Andreas, you're the one who's literally kicking off the oneone renewal season. And the big question is now, do we, over the next four months, have enough time to manage the terms and conditions of the discussion effectively? Or are we going to get to right around Christmas where one underwriter or the other is saying, okay, you know what? We'll just take it as it is. I'm exhausted. I want to go see my family and open some presents. That to me is probably the most critical operating level driver from COVID-nineteen right now. The other thing that we're seeing or we've heard about but haven't seen yet is post cat remediation with COVID-nineteen. So my team conducted some research back in April about how insurers were preparing to adjust claims in a social distancing environment without access to think of constraints on-site visits just with scale, right? So far, even with Hurricane Laura, our understanding is the Irish insurance company or independent adjuster has not had to turn to more innovative techniques for adjusting claims, which means that cycle time proceeds as it has in the past, innovation remains on the sidelines, and we don't know if we can bring that in to a massive benefit yet. Generally, nobody has had to change what they're doing. That being said, everyone's acutely aware of the other impacts that COVID has had on post hurricane remediation, such as the supply chain issues that are leading to demand surge, shortages of lumber, inability to get full size crews onto a work site because of social distancing. Whether or not these factors increase the insured loss associated with hurricane because of COVID, but without being directly attributable to the pandemic, that remains to be seen. And whether or not that sort of demand search works its way into models for oneone could be quite interesting. Yes, but that is what you see in not in all countries, impact of COVID-nineteen in the P and C business is exactly the same. So what Postpieffel said that the wording and the terms and conditions are getting more and more important. There was one interesting point, if I may raise that again. So the relevance of the pricing. So if the risk is priced for in the coverage, Adolfo, you brought that up. And my question would be, let's assume that this is is is possible in a proper way. Would you think? How much capacity would be available in the alternative market, in particular, considering that the noncorrelating character wouldn't wouldn't be there? I I mean, that's a pretty tough question, and I I'm not exactly sure. You have to think that the correlation is not a 100%, which means that it would be still an attractive an attractive proposition. But I'm I'm not exactly sure. And it it's it's it's so many so many questions in one. Right? It's like how attractive. If it is very, very attractive, obviously, there's gonna be a lot of capital. But it depends on how much we say we're pricing for. It's it's a different it's a difficult question. It's a difficult question. Definitely violates the no correlation assumption, but to what extent, And what would be the pricing? I'm not exactly sure. Yes. Well, certainly, I think more likely, it's probably an exclusion of the risk rather than a broad incorporation of the risk in the upcoming covers also at least. Will there be a market for pandemic specific solutions? I think probably, I'd agree with Adolfo, it's probably a price question. I think the general investors would expect would shy away from it just for the increased correlation. But certainly, I think there's capital for almost any solution if the pricing and the margin is right. But I think the broader market will as it already has done, I think, at midyear with broad exclusions, think that's at least what we would expect. The investor community, I believe, would expect a somehow reliable model to underpin any kind of pricing. And I wouldn't dare to present to you guys a model for pandemic scenarios. So in the meantime, the question wanted to add So the one thing we have is demand. My team has been for pandemic how much commitment would vary based on the type of original insured available. This one was somewhat immune to COVID nineteen impact. But what you've got here is just such a massive chasm between the original risk and how that is valued as a product. And then ultimately, all the way up to risk and capital supply chain to the end investors who would be competition for capacity where you've got cat is priced so high right now, some of the most sophisticated modeling out there, moving to pandemic, and it's not an easy move. So I said there are questions coming in, there's one which perfectly fits into the current discussion. So I just read out loud to everyone here. Will COVID-nineteen lead to an event both in insurance and reinsurance and capital markets of parametric risk transfer? Cat and non cat given clarity on terms and conditions. You want to take that? As with I would say that as with many perils, right, when there is a when there's a lack of model credibility, the only place where you can start is with parametric. Right? That that so if there would be a solution, you would think that you have to start on that side. So you just have to take a step back. If you're gonna build a model, the only way that you can build a credible model is to start at the simplest, purest form of the risk. And then as time goes by and people get more comfortable, you would move closer to something that has more of an indemnity component to it. But to me, it seems like to if it will create a credible model, you have to start at on that side. I mean, primarily, say, not such an easy topic even though we see more interest on that. But from a sponsor perspective, perhaps, Iwald, you can comment on that and probably you, Thomas. I mean, you still run this basis risk. I mean, what's your perspective on that? Yes. I'll try to be look at this because in The Netherlands, the COVID-nineteen is not a real topic. We have a lot of named barrel policies, and COVID nineteen is excluded. So from a sponsor perspective, the company I represent, I don't see COVID nineteen as a problem in the PSC business. I I was also thinking about what Adolfo said about the parametric, and I was wondering how you could take into account the influence the government is taking. We see several actions of of of of different approaches in the government from a total lockdown and lighter regime, and I was wondering how you could introduce that in a parametric solution. It'd be very difficult. You have to take a sort of parametric based on either fatalities or casualties. You need to find a reporting agent that you trust because you've got political risk in the government reporting process alone. Look at The United States. Look at Bolsonaro in Venezuela. So basically, what I would do for The U. S. Is use state and local health agencies and aggregate up to the total. Okay. That's part one. Part two is defining lockdown. I've heard a lot of non U. S. Folks talk about U. S. Lockdowns. It's literally impossible in The United States. We have more than 50 governments, not one. So you need to clearly define what that foreclosure is and tie that to some series of specific events. Okay. Similar issues in Canada, and other countries with various threat. Yeah. Yeah. Exactly. And then on top of that, you've got, political risk on the front end, to the dollar point analytics modeling based on how governments will behave. I talked to a Brit recently who said, well, it's pretty clear that The US will learn from this mistake. My response is when have we ever? You know? And the same could be said for Bojo in The UK or Macron and so on. Governments don't learn from their mistakes because elect you know, voters don't learn from their mistakes. And how a government responds to a pandemic will have as much to do with the party in power in the election cycle as it does with common sense. In fact, common sense probably suffers the most. So add to that scarcity of capital and on top of that, likely thin demand. I'd love to see a parametric market pop off. I've done a lot of commentary on it the past six months. But the reality is I'm not that optimistic. I think that it's basis risk aside even, I think it's a difficult proposition on short notice with political risk being through the charts. You need a political risk indicator built into that trigger. Yes. But as a sponsor, it's also necessary that you have somehow a good feeling about the link to the paramedic solution. Is it really something that is matching the development of your losses? What would say is rather than take that approach, forget about matching the loss to your book. I would use a parametric as a blunt instrument hedge. They should be saying, things are going wrong. You know what? If things are so bad that my book is so deteriorated, this parametric will get me a fast injection of capital as a problem even though I've got a much bigger problem to deal with later. Yeah. Copy. There is one question coming referring to more structural topics of cat bonds in relation to pandemic, which says doesn't make the return period, the modeling, etcetera, make the pandemic unstable for ILS coverage. I guess that could be something for you, Philippe? Yes. So certainly, I think, mean, and I agree with Thomas. I think the modeling component and then having independent models available certainly is important for the capital market in particular, which I think much more relies on independent metrics. So in that sense, I mean, it's, I think, not too dissimilar to cyber or terrorism or other kind of perils, which may be kind of a more at the less developed kind of range of risk spectrum. So I would say that's really the biggest challenge, I think, especially given that these are, yes, non proportional kind of type covers and that's probably what's needed in the capital markets. So I think pandemic solutions, unless they are really more mortality focused than for more tail events where you can capture kind of movements in in the mortality rate, I think, we don't see kind of immediate on on the pipeline. There also seems to be the problem that the pandemic cat bonds appear to be they have to offer the least advantage of uncorrelated returns, it would appear. Clearly, what we've seen, this financial markets collapse as the pandemic risk became real and so would the the the bonds with the underlying risk. It's one interesting question. Picking perfectly into that topic, and the question is referring to the length of the tail, where do investors see that in their portfolio? How will Capital get the appetite for such? I was gonna say, I hope you didn't ask me. It's it's it sounds fairly complicated. Right? The thing is in and as we're seeing in COVID right now, I mean, we've just gone through the first season of it when we don't know whether there's gonna be more seasons coming. If you go and look back at the pandemic the flu pandemic at the beginning of last century, that is something that lasted all in three years. So you can see that you can see that it's it's it's a real issue, capital trapping, and it would be one that you would have to solve before going into it. You know? But at Nephila, we've been we've been around for twenty years. So this whole idea of trapped capital, trapped collateral is not something that is new to us. We just figure out ways to deal with it. And I would say that if you're if you're going to enter into a transaction where there's a potential for a long tail like that, that is something you need to solve before you before you decide to enter. It's not something that you should be thinking about after the fact. In terms of I mean, it there there's so many things to think about there. Right? I mean, there's there's a tail. And when I hear tail, I think that you're talking about about the duration of the risk instead of the of the of the tail distribution. That's, yeah, that's something that needs to be engineered for, and I think this is in that point, I will just point it back to Philip because he probably has a better idea how you would deal with something that has a long tail, and you would turn it into a short tail proposition. Yes. And then and then kind of on that point, I think that there's really kind of two two questions. Think one, kind of how can you design a solution for a product like this going forward or to Adolfo's point. And and, I mean, there's obviously potential ways to kind of deal with that. I think the more important question maybe is really how will COVID affect collateral trapping at the moment or and especially in 02/11. And I think seven the June and July renewals have provided a little bit of insights to that or that I think certainly and again, I think every market segment will behave quite differently there. I think the retro segment and especially the aggregate kind of type contrary to the cap one market, for example, where I would like to add one perspective here. Recently, in our risk committee at Munich Re, we had a discussion about that topic, and we do see the downside for the investor, which is a lower return definitely, and it would need to be priced in again. Then on the other side, the downside we see for ourselves or for the one that is reinsured or insured via such a construction is if then the reserves exceed what is being determined in the loss table buffers and you sit on a loss that should have been shared, but then there's no payback from that, that's a big negative from our perspective when we are looking for protection. I guess this is one of the of the gaps where a bridge needs to be built to really bring the interests of sponsors and investors together. Happy to take any ideas or even solutions that you have. Anyone on the on the panel who wants to comment on on that gap referring to the interests of both sides? Yeah. It's a matter metric. I mean, it really is as long as you can find sponsors who could accept not accept the unpaid for the basis risk and the novelty risk. The biggest problem we've seen with our metric pandemic, which we've also seen with cyber and other newer risks, is that you've got teams and sponsors who have never had to pay for the cover in place, right? It's always bundled in or lumped in or unspokenly chucked in, and they want to pay as little as possible because it's unbudgeted relative to tax expense. And you've got investors on the other side who want to charge a novelty premium, who are fine with basis risk and who are going to deploy either to this new novel risk or to toward a cap, which is paying really well and is well modeled. So the biggest opportunity, I think, for a bridge, Philip, would be for you and the broking community to sit in the middle and actually bring these two sides together and say, okay, let's Yes. Look, think from our side, I mean, are certainly, again, a lot of different topics within this discussion. There's one, how do you design an efficient solution for pandemic kind of going forward and can it be parametric and what's the best way? I think the question about the buffer tables really, in our mind, I think, has to be subdivided into, is it a more proportional type relationship or where I think there are some increased mechanics in place to allow like sharing of collateral in multiple years and things like that versus kind of the more non proportional market where, again, I think you generally, in a collateralized structure, certainly subject to some collateral holdback, and then that's more difficult to engineer in that sense unless more rated platforms or other structures are kind of being used, which I think is another trend we're clearly seeing in the ILS market, or I think the move kind of, to some degree, away from a single collectionized platform to multiple platforms. This is clearly a development, I think, which will further accelerate. So we've talked a lot about COVID-nineteen and COVID-nineteen related topics. There are no further questions from the audience on COVID-nineteen, but one which leads over to a very interesting topic, I would call innovation. So let me quote this one here. Besides topic around lack of modeling capabilities and data, etcetera, Why are there no more ILS transactions for cyber or other coverage covers other than Nat Cat if the capital supply is there? So I guess this is something where everybody can respond. Probably, I would be interested to get involved too. At first, perhaps, I mean, I don't know whether you made up your mind on different risks you would think to bring to the market? I mean, here, it was mentioned cyber, for example, but there are other casualty risks, etcetera. Is there a kind of, let's call it, wish list or so which you would have in mind? Yes. We are constantly thinking about how this market could help us in new risk. It can be also more type of life risks. And that's also one of the reasons that we entered the ILS market again with the one for for a transaction we did earlier this year with Mill. I think this market is is very important, and I think for us, it's it's necessary to know that market better. And I don't want to sound arrogant, but I think it's also important that the ILS market knows AKMEA better. You mentioned cyber. We as a as a insurance company also struggling with cyber. Cyber is one of the key risks for commercial and industrial risks, but we don't see a real demand of companies that are buying this kind of covers. So in our case, the exposure we have for cyber is still very, very limited. But we know that cyber is one of the most important risk they have to, to find protection for. You, David. I'll ask you one comment on that. The lack of oh, sorry. The lack of ILS capacity is the single biggest constraint on the growth of the cyber market right now. Insurers don't have enough capacity to fuel all the demand from original insurers, let alone the pent up risks that aren't reflected in the original insured demand yet. Reinsurers are filling their boots pretty fast and can allocate more to insured. And let's get real. Insurers are relying on reinsurers. Approximately 40% of original insurance cyber premium is ceded to REIT. Alright? So insurers can't grow without reinsurance, affirmative cyber growth. And reinsurers aren't doing these small bespoke retro deals and can't get enough retro out there. Why not? Because everyone's writing the same stuff. You know? The reinsurers turning to a retro writer is probably on the same programs. They don't wanna share their data with each So retro doesn't happen in that regard. What you need is you need new, fresh, non correlated capacity to come in and fill the gap. The biggest problem there is price. Stevens and even retrocedes still don't want to pay. And if you take the ILS funding, you look to Adolfo there, are you going to get the returns on cyber that you will on Florida wind? You're not going to find a senior who's willing to pay that, but they should have to. So what you need now is, again, a meeting of the minds here where the market can get real and say, okay, I as a senior know there's a downstream market opportunity that I can capitalize if I actually pay a reasonable price for retro. You know what? Yes. My initial price is the most I'm ever going to make before the brokers beat me down and the CDs beat me down, but I have to pick a more realistic insertion point. Do that, and we're close to it. Do that, and the cyber ILS market just runs like crazy. We know there's demand. In Q1, we got to the first realistic spread we've ever seen on a cyber ILW, literally within three percentage points between Siemens and the markets we're bidding. Usually, it's about 10. So it's still too far. And then COVID mucked it up with uncertainty with that capacity driving prices up. But up until that point, you know what? Had an opportunity. If we don't get that right, one one is a market, this cyber market will remain fundamentally dysfunctional. My two cents. Thank you. Ivan, perhaps you could share from your industry perspective where you deem it most probable that the or most reasonable where the ILS, ART market should expand into in order to add value in the overall insurance and reinsurance community? And perhaps you, Adolfo, then can let us know whether you deem that as realistic or Maybe first, I'll add to Tom's point where I think on the capital availability, well, clearly, the the amount of fiscal and monetary stimulus that we have just seen over the past several months, I I think we'll we'll to a large degree, take care of that, I imagine, in next twelve to twenty four months. Because already, if you look at, property risks, the the coupon less less expected loss is around 5%, whereas the the yield on a triple b dollar that of a similar duration is, is sub 1% or around 1%. So, it is indeed the question of price, and, there are multistrategy investors who, think, over a certain period, will start delegating a lot more money. As to your question, Andres, I think if if it it seems like there is now demand for for two things, you know, from the reinsurance capacity perspective from Siemens. If I'm you know, maybe some arrogant just to give my view, it seems like you have you have the protection for the balance sheet, and you have the the earnings volatility protection. So so far, the the ILS markets have been, I guess, mostly helping out with peak risks, helping on helping on both sides, but it doesn't really help to write the the long tail lines as well. And this is a this is a perennial debate, of course, about whether you could see casualty ILS of certain certain style. And maybe I'll I'll just leave it there. That seems to be a a huge part of the market that doesn't have an effective backstop. Thank you. Adolfo, your assessment? Yeah. That and and that's it. It's funny. Mean, you just brought up a great point that I was trying to make. We're talking about whether there is demand to transfer cyber risk. And through all the interventions from every panelist, I got the impression that what we're talking about is that it but it didn't sound to me like at any point anybody was saying there is a real need, like this is a new peak that it could be beyond like an earnings protection. This is a real capital protection purchase. And it seems to me that until we get to that point, there isn't really a demand, right, until until it gets to the point where because this is a capital protection issue, the insurance upfront are making sure that they're charging for that use of capital. And then they decide that, okay. We have enough of this risk that we need to transfer it to somebody else. The demand isn't reached, and I'm gonna charge a fee for doing it. And and and that's not really what ILS is here for, at least not what it originally originally was here. ILS was here to just transfer the peak risks into deeper pockets beyond what the insurance and reinsurance market could do. So, obviously, cyber is a risk that has the potential to become a new peak. But based on what I'm hearing here right now, it doesn't seem we're there yet, Does that make sense? I I think it does. I I think what I qualify that, though, with Adolfo is that the market can't grow yet to the point where it can become a peak peak risk to be transferred because it's so fundamentally dysfunctional. I I think in a a more normal world, we would just see insurers allocate a more realistic amount of capacity, not rely on CBDRE so much in order to manage that market. So my understanding is cyber is seeded at 4x the rate of cat, for example. And that tells me, hey, there's not enough money there, they're over reliant on reinsurers, but also like they're not investing in this market the way they would for CAT or other established clients. So to your point, yes, it sounds like insurers are relying on reinsurers and then ultimately, later, we get ILS funds to assume the bulk of the risk and establish that market without taking a significant chunk of that risk themselves. If ILS were to step in and say, hey. You know what? We can we can provide some capacity here to help you grow. But it seems to reinsurers, you know, you're gonna have to pay for the privilege because this is a lot cheaper than what we should be doing, which is allocating significantly more capacity to that market. I can confirm what has been said just by what Tom and Nadolfo. I'm convinced it will become peak risk. I don't know if it's going to happen in five years' time or maybe ten years' time, but it will happen. It is growing really at a very fast pace. And Edward is absolutely right. Within our reinsurance portfolio, it's still diversifying very well. Capacities we allocate are quite small per risk, are still small to medium in aggregate. So again, there's no real need to develop a retrocession market for us right now. But if the growth continues like we expect, there will be a need or we simply have to restrain our underwriting approach. And again, how we are trying to manage it together with our insurance clients, insurance partners is the way it has been explained. It goes far beyond capacity and earnings volatility. It's about a common product development, common development of services and therefore, shared risk on a proportional basis together with our clients. And I would conclude, cyber is still in the early stages. Therefore, this is the way it is. It's still small compared to the other peak risks of the world, but it will grow into one. And definitely, there will be a need for retrocession markets or for opportunities. The topic innovation, new risks, etcetera, where you still have to develop risk profiles, develop data sets, etcetera. The question says flight to quality found its place in many headlines over the last twelve months. And even more recently, what does it mean, and what are the criteria for being assessed as a quality player? Hey, Walt. You just did a did a capital market transactions a couple of months ago. I guess you could also Yes. Take that one Yes, of course. Thank you. Yes. We have a very good relationship with the traditional reinsurance parent as possible with our risk data and our loss data, and we shared with them a lot of information. And, actually, what we did with the ILS market was exactly the same. So we shared exactly the same information with them. And and bearing in mind that we do not buy a cat bond because there is not enough capacity in a traditional market, we think that it is a very good basis to find a solid solid ground and then a robust relationship for the longer term. But I think if you want to have a relationship for the longer term, you need to be transparent. And we think it's very important to do it on an indemnity basis, and therefore, the quality of the data and the data we shared with them is very, very important. I think if you are purely on a parametric, then the quality of your your information is is not relevant. The reason yeah. And you said this we have a character in industry loss is that your data is not relevant because you're protecting your intellectual property and your competitive advantage and making the transaction easier to digest with an independent third party as the reporting agent. Yeah. No. I I wouldn't say one versus the other, but they serve two different purposes. Yeah. Exactly. They serve different purposes, but we prefer not to have a mismatch between the model output and the actual loss if it happens. Yes. I agree with Edward. Tom, audit committees and risk committees don't like a basis risk. Go for it. I wouldn't say that's universally true. We see plenty of, basis risk heavy transactions executed regularly. I think it has a lot more to do with the company's strategy for assuming managing risk and capital, capital availability and what they hope to accomplish. I'd take to Adolfo from here on the biased party, of course. No. No. I I would agree. I agree with you. I I agree with Tom. I mean, it's it's it's different ways of buying, and it's just different different objectives. I mean, there's people who are more than willing to take the basic risk. I mean, there's there's so many people that transfer risk that they know that if if a certain scenario happens, whether it's their book or whatever, they know they're gonna take the loss. So they're more than happy to say, yes. There is basis risk here if you look at modeling, but we know that if things get to that level, we're gonna take a loss that is probably in excess of what we're getting. So what's the point of trying to match the modeling output? You know? It's they just know that we're in the risk anyways. So Yeah. And in fairness, what modeling output would have shown the development on Irma? I mean, basis risk may be a problem, but you're gonna have decades of development, I mean, my son is going to sort out that loss, not me. I would say that audit risk needs to balance, loss development, tail and duration of that post settlement process and realize that you know what a balanced approach that does have something, accelerated claim velocity may provide some cash flow benefits, some strategic alternatives, the ability to redeploy and so on and so forth. I guess those will pretty much depends on whether you get the the volume you're reaching out to your market and at which price, obviously. I mean, then the decision probably is easier to also think about other triggers and mechanisms. I think it's it's it's it's fish or meat. You cannot compare them, but some some people prefer meat and other prefer fish. And I think people each other should not try to convince some meat eaters that fish is lovely. We we we choose on purpose for an indemnity indemnity based transaction to avoid the basis risk. Some enjoy fish, some enjoy meat, and in q four, you're gonna find out that you'll eat what you can get when you're hungry. Yes, yes, absolutely. Absolutely. There is one interesting question coming in referring to the cat bond market as such. So the question is how far we are away from a really functioning secondary market and what needs to be done in order to get there and maximize appeal to the whole spectrum of investors. I guess this is a very interesting one in particular as we've seen this dynamic market, cap on market on the trading side March. Who wants to take that as the last question from the audience? Yes. Andreas, maybe I can start. I mean, yes, so certainly, mean, as you mentioned, I think, I mean, think a robust secondary market certainly is helpful and appreciated. But similar to your comment, what occurred in March is really also a robust primary market in that sense and that the two are not directly kind of like functioning basically in parallel. I think what needs to happen to kind of further increase it is really more volume in generally, I would say, and more investor participation also outside of kind of the core participant and everything else will kind of grow naturally with So I guess then we can allow for one additional from the audience. It refers to jurisdictions out with new ideas forming hubs for ILS transactions. And the question is, what's your opinion on new regimes entering the ILS market? Do you see an increased interest there? I guess this is something for you, Philippe, as well as probably Evoque. I don't know whether you've looked at different locations to set up the SPV. Perhaps you can both comment on that. Yes. Maybe I can kind of start. So I mean, generally, I think, yes, variety is always a good thing in that sense as long as it's tested and robust in So certainly, I think transactions generally run on a Palatine time line and enterprises and kind of approval processes and things like that certainly ideally are minimized. And I think the important thing is really are the robustness of the process and also any kind of regulatory risk surrounding that. I think having more jurisdictions available like The U. K, for example, might be more familiar to some sponsors. But again, in our mind, that's more kind of a secondary, I think, development and importance to the marketplace. Joao, do you like to comment on that as well? Well, we started the discussions internally about renewing the cat bonds, we also consider the domicile. And as you probably know, our first two transactions were private deals, and we're both domicile from Windhelry in Bermuda. But when we took all the regularity aspects and also the tax implications or the interpretation of the tax interpretation laws into account, We favor for having a carrier domiciled in the Solvency II European area. So that's why we choose for Dublin, Ireland. Okay. So thanks a lot. So we have still three minutes left. And sorry for not taking the last questions, which were dropped to my screen because the last one is a routine. It's always the same. So speakers who listened to our event in the recent past actually should have an answer prepared. So the last question to everybody on the panel today is, as always, what would you expect the market to be in five years from now? And how would you like the market to be? Ivan, would you like to to start? Well, I I think I would probably not be entirely surprising. I think the market will be larger. I think there is gonna be more money chasing financial assets. And therefore, the pool of capital with better models will probably be be able to better address the the needs of the cedents and the green insurers. In terms of of would we like to to be more classes and more risks covered, I guess, very clearly so. Obviously, you've touched on on cyber. I'm sure it's gonna be more than just property. Although the pace of this, I'm probably not the best person to to judge as to how quick this could happen. Thank you. Tom, how about you? I think over the next five years, what I prefer to see in what I think will actually happen are broad increase in perils. Again, not to the extent where it's going to seriously erode the share held by the stuff that's out there now, But you will see cyber, iOS with scale. You'll see, Japanese index transactions with scale. And the reason you're gonna see all this is because my team and I are gonna make it happen. How about Adolfo? I I would say that definitely agree that it's gonna be a larger market. There's gonna be more capital flowing in. It should be broader. There should be other perils as there is new peaks or, you know, semi peaks coming up. There should be ILS solutions coming to it. And for all that to happen and oh, another thing is that it should be more streamlined. The placement should have a a lot less touch from the beginning of the transaction to the ultimate risk bearer, meaning from the buyer protection to the person providing the capital to cover that, it's gonna be it's it's gonna be more streamlined. And for that to happen, there's gonna be a lot more transparency and a lot more data dependency. Thank you. Yvout, would you? Besides the points that were already addressed, I think in five years, the friction cost will be lower than they are now today. And maybe the data will be more robust by using blockchain technologies. And on top of that, I think also more barrels will be introduced into market. Philippe? Yes. No, I would agree. So certainly, think that we would expect the market to grow as well. I think the low interest rate environment and I think the continued appeal, I think, to from investors of the ILS sector because of its non correlation even throughout COVID, I think, will remain. So yes, so certainly agree with the growing market. I think hopefully, we see continued development on the product side, which I think, yes, will cover more lines of businesses, but also will bring more risks into the marketplace and hopefully bundled with also trading abilities to capture some of kind of all the long tail lines and specialty lines as we have seen already in some segments of the market is something we kind of are certainly working towards and hoping for. The last point maybe to make as well is I think we will see more investors participate in the market, or I think we're seeing increased interest from institutional investors to form partnerships and understand the market better. And yes, given that alternative asset strategies will grow, certainly, those discussions will kind of continue in our mind. Thank you. Last but not least, Thomas? It's hard to add anything, I mean, especially against such a consent on how you see the outlook. Maybe a few items. I think the industry will continue to learn and hopefully further develop to get terms and conditions right, clearer, transparent and make more independent modeling available, especially for the peak risks. And that is the foundation, of course, for more ILS opportunities. But I think it's going to be only a gradual development. Maybe one or the other setback is already out there in the next few years. It can come and go, but the long term trend is growing. On COVID-nineteen, I think the solution is more in the direction of state support and development of pools, where in private public partnerships, the insurance and reinsurance industry can take a share and can help to build that up. But on cyber, I wish that we really develop a strong ILS market because I do foresee that as one of the real big peak risks in the next few years for the whole world. Well, thank you. So with that, ladies and gentlemen, I would like to thank all the panelists for the time providing the individual views, thoughts, etcetera, and close this session officially. Also, thank you to the audience for participating at Munich Re's twelfth ILS or first virtual ILS roundtable. Stay safe and healthy, and hopefully, we will meet for the thirteenth roundtable in Monte Carlo again. Remember always, Mondays between ten and 11AM. Thank you, and bye bye. Thank you. Bye. Thank you. Thank you.