Following XL Group’s full year results, which were significantly impacted by a year of major natural disasters, the company is acknowledging lessons learned for its outlook on the North American market.
XL Group reported an operating net loss for 2017 of US$521.6 million due to natural catastrophe pre-tax losses that came to US$315.2 million in the fourth quarter – almost US$70 million more than the previous quarter.
There are silver linings to the results, however, despite the tough year.
“Both our fourth quarter and full-year insurance accident year ex-cat combined ratio and loss ratio were better than in the prior year periods,” said Joseph Tocco, XL Catlin’s chief executive for North American insurance. “What that tells us is that we’ve been moving in the right direction – reducing volatility in the cat space, while leveraging our market position and high-quality customer base.”
As for lessons learned, the changing climate and future catastrophes are important factors when considering rates for the future.
“The biggest industry-wide lesson learned is that current insurance rates are not sustainable, especially if there is a repeat of last year’s volatile weather,” said Tocco.
What was particularly unique about 2017 was the cascade of weather events. XL Group’s ability to review its performance during a catastrophe was hindered because they happened one after the other.
“In previous years, even during one hurricane season, we could typically learn and apply what we learned to the next event,” said Tocco. “These events happened in such rapid succession that there was little time to apply what we learned from one event to the other.”
The hurricanes also revealed the limitations of technology and showed the importance of the company’s expertise.
“There’s been a lot of focus in our industry about new technologies that are helping us to maximize our resources, work differently, quickly and more efficiently, including in our claims management,” said Tocco, but during Hurricane Maria, when there was no electricity to run those new technologies, it was important to have “qualified ‘boots on the ground’ to reach out to clients as quickly as possible.”
Tocco doesn’t see the way XL Group works during and after natural disasters changing. Moving forward, the company will keep “doing what we have been doing.”
“Helping individuals, communities and businesses recover and build from events like we’ve seen recently is what we do,” said Tocco. “That’s not going to change, although we will take the lessons learned and see how we can prepare our clients for whatever is around the corner.”
However, what needs to evolve is the price the insurer accepts to assume the risks of catastrophes.
“Pricing peaks and valleys were once synonymous with the insurance cycle. That hasn’t been the case in quite a while,” said Tocco. “Pricing needed to change before, and certainly needs to change now to assure that insurers remain in a strong, sustainable position to do what we are meant to do for our clients – assume risk and respond when they need us.”
The North America Insurance team’s adjustments will be focused on achieving sustainable rate, and according to Tocco, conversations with clients are the starting points.
“Change has to be appropriate to each company’s profile and each client’s risk. We will not adopt a one size fits all approach to our discussions – each client’s risk and trading relationship will be factored into the renewal.”
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