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00:00We're reminiscing that it's been over a year since we've talked.
00:04A lot has gone on, to say the least.
00:08How does the ongoing war impact you guys and just the backdrop in general?
00:13It's great to be back.
00:14It only escalates the risk landscape.
00:16When you think about cyber risks, climate risks, energy risks,
00:20you see manifested in the Persian Gulf today,
00:23specialty insurance companies bringing a critical product to the market,
00:27protecting those vessels in the transportation of goods and services.
00:31You think about how that risk can be made worse.
00:34Well, certainly it impacts energy concerns, right?
00:37It certainly has the potential of introducing more cyber-related risks.
00:41And so the risk landscape, as we describe it, is fairly perilous right now.
00:45And the role and purpose of companies like mine plays a vital role in the global economy.
00:49You mentioned a lot of risks.
00:50Is there a single biggest risk that you could point to?
00:54You know, each of them have their own sort of risk dynamic.
00:58We look at them in separate ways.
01:00But in the aggregate, it's material.
01:02I think presently we're talking about the marine landscape.
01:05We've been in the Persian Gulf protecting our insureds since the conflict began.
01:09We remain in the Baltics.
01:11We remain elsewhere in the world providing this cover.
01:13So today that's a pretty topical coverage.
01:15Are there any products or vessels that you will not insure in that region right now for a reason?
01:22Yeah, certainly.
01:23It depends on the origination of the vessel, the country from which it emanates.
01:28We have restrictions around that.
01:30There's types of goods and services that will bring different restrictions as well.
01:34So when we underwrite the exposure language we use to price the risk, we look at a variety of factors.
01:40If a ship is insured to, let's say, go through the Strait of Hormuz, a tanker is insured to do
01:46that, and then a conflict breaks out, can the insurance company say, we're no longer covering you as a result
01:53of this conflict?
01:54Tim, that's the essence of the coverage that we're providing.
01:57So the coverage we provide is not just normally covering the vessel.
02:01We provide a specific product for war.
02:04And so that's why this product is being so sought after in these conflict areas.
02:09And these policies are highly structured.
02:11Well, you know, we were just talking with our Nick Wadams, are we a world at war?
02:17Based on what you are seeing and companies increasingly looking for that kind of protection, talk to us about how
02:23much demand is up and what would you say, are we a world at war?
02:26And is that different from where we were 12 months ago?
02:29Well, I think we've had years ago.
02:31Yeah, I think there's an escalation in more geographies around the concept of this marine war coverage.
02:38But there is certainly demand for it.
02:41Remember, there's well over 160 vessels out in the Persian Gulf.
02:46We think, we estimate some 10 passing through the strait daily.
02:50These ships need coverage.
02:51They're carrying goods and services that have to get to an endpoint.
02:54And that's the vital purpose that we provide, that coverage.
02:58Just because Tim and I sometimes like to get into the weeds, what is a policy cost to insure a
03:04vessel, especially with that kind of risk?
03:07It depends on the good and services, but you're not speaking about something that's less than six figures by any
03:14stretch of the imagination.
03:16This product is underwritten out of Lloyd's of London.
03:18Yeah.
03:18And so it's a syndicated market.
03:20Everyone takes a fractional share of coverage on the vessels themselves, if that makes sense to you.
03:25Just spreads the risk.
03:26That's exactly right.
03:27How do you price the risk, though?
03:29Well, that's a secret sauce.
03:30Yes, but there's honestly, there's a variety of underwriting factors, the vessel owner, the safety record of the vessel, the
03:37crew that's supporting the vessel, the nature of the goods and services, to just name a few.
03:42I mean, it's the same as you think when you insure a driver for your own car.
03:45In some ways, there's an analogy.
03:47Yep, exactly.
03:48You know, what is the background?
03:49Yeah.
03:49And you look at different statistics that do that.
03:52Sure.
03:52But I'm curious about the way that that pricing has shifted and the way the risk has shifted in this
03:57geopolitical environment.
03:58Can you actually put a number on it?
04:00Yeah, I would say it's up 30% to 40% from rates we were charging a year ago.
04:05Okay.
04:06The demand remains high, and the interest, of course, in our underwriting standards is certainly important.
04:12We have to price business for a return.
04:14We recognize we're going into a fairly risky environment, and we're willing to take that risk.
04:19We have a number of insureds that we've been with for more than a decade, and so it's critically important
04:24to us.
04:25On your second quarter call, and if I recall, I think the share price took a little bit of a
04:31hit.
04:31It did.
04:32Following, I think there was some disappointment.
04:34I think the stock was down.
04:36I'm just looking at my notes.
04:37I think about 17% intraday and then closed down about 11% reacts to the second quarter.
04:42You did talk about property pricing falling faster than you expected.
04:46So how much further do you think it could possibly decline before you materially pull back maybe from that exposure?
04:53And where are returns maybe still attractive?
04:56Yeah.
04:56You know, Carol, we deliver property insurance through eight different underwriting units across the world.
05:01And we did note, as you point out, that the rate reductions in property – so to be direct, I
05:07think if it goes down another 15-odd percent, we will materially pull back and reapply that capital to higher
05:14risk return areas within our portfolio.
05:16We took a material step in the second quarter to recognize property pricing, but we also commented on the continued
05:24liability challenge in casualty lines with social inflation.
05:28What do you mean?
05:29Yeah, so casualty insurance is a so-called long-tail product.
05:34It's a product that develops over many years.
05:36The ability to charge an adequate rate to cover future liabilities is increasingly challenged, and it's made more difficult because
05:43of the impact of runaway jury verdicts, plaintiff's bar that is bringing escalated focus and challenge.
05:50No, like I listen to this, and I think about whether it's property because of climate change and different things,
05:55like increasingly difficult for certain individuals or situations or entities to get insurance.
06:03Yeah.
06:03Is that just the reality of today's world?
06:05I think generally it is.
06:07We participate in the commercial sector.
06:08And so our buyers are coming to market knowing that they need the coverage for a variety of reasons.
06:14Climate risk, catastrophe losses, you know, we didn't talk about that.
06:18It's over $100 billion the last five years.
06:21Right.
06:21Think about that.
06:22Right.
06:23Well, and just potentially growing, right?
06:26There's no doubt about it.
06:27With climate risk.
06:29Let's shift gears a little bit and talk data centers and AI.
06:32I'm curious if you're-
06:33Speaking of the climate, sorry.
06:34You're involved in underwriting data centers at all.
06:36Yes, we are.
06:36But in both of our underwriting platforms, yeah.
06:38So from the construction end, the ongoing operations end?
06:42Both, both.
06:42What is that?
06:42Stem to stern.
06:43So we're providing a variety of products to the data centers.
06:47So what does that business look like for you right now?
06:49And also, what does it look like for you over the next two or three years?
06:51You know, it's a growing segment of demand.
06:54There's no doubt about it.
06:55We are cautious about what we call accumulation risk.
07:00Having a concentration in one sector is problematic for us.
07:04And so we are distributing our risk choices very carefully and selectively.
07:10And to your point, where we're attaching our capacity in the development,
07:14in the property exposure, the credit exposure.
07:16So there's a variety of types of products that we're bringing.
07:19They also include marine, believe it or not.
07:22Well, how so?
07:23How so?
07:23Well, the transportation of the materials going to the data center to be completed, that's an exposure.
07:30There's a variety of different exposures.
07:32Are those typically coming from Asia to the U.S.?
07:34They're all over the world.
07:36There's 5,500, I believe, in the U.S. at the moment.
07:39We're not on all of them, obviously.
07:41But we see any number of them.
07:43But there's pushback in a lot of – we had – gosh, it wasn't yesterday.
07:46About Texas.
07:47It was just about some data centers in Texas.
07:48There's a number of jurisdictions.
07:49Are you seeing –
07:49Yeah, Toby Rice, who told us yesterday, he cited – he's the CEO of EQT.
07:54He said data centers are less popular than ICE.
07:57Yeah.
07:58Like in polling.
07:59Do you see a slowdown in terms of your business involvement there?
08:03We don't.
08:04We don't.
08:05We see a lot of engagement and conversation.
08:09But intermediaries are representing companies, and they're bringing these risks to the insurance marketplace for protection.
08:16But having said that, you also said you're selective in terms of where you want to be exposed to this.
08:21So does that mean in terms of the companies that you'll be involved in?
08:24Like how do you –
08:26We reconcile selective by saying depending upon the underlying risk dynamics of the data center, who's undertaking the building of
08:36them, what are the materials, what is the capital structure, how much capacity are they trying to secure, what are
08:42the risk controls associated with the data center?
08:45We make bets on the basis of that and many other factors.
08:48So if it's an Amazon or an Anthropic or a Microsoft – I'm not asking you to tell who you're
08:52– but –
08:53He can, though, if he wants.
08:55You can share as much.
08:57But that might be more of a sure thing versus maybe a smaller player.
09:02Yeah, the sponsor organization has obviously bearing on our consideration.
09:06That's right.
09:08Okay, cyber risk.
09:09You bet.
09:10You mentioned a little bit of that with the context of the U.S. and Israel war.
09:14Sure.
09:15In Iran, has pricing in the cyber insurance market improved at all?
09:20Modestly.
09:21And in our view, it needs to be strengthened materially.
09:24Does AI accelerate claims?
09:25There's no doubt it has the potential to bring ransomware matters, which is the largest source of claims, in a
09:31much more varied way than historically.
09:34The innovation of Mythos and other applications has a threat potential that we have to have our eyes wide open
09:41about.
09:43Biggest risk.
09:44You know, we just came back from Huntington Beach, and we future-proofed a big investment conference, and we were
09:48talking about risks.
09:49What do you see?
09:50Just got about 30 seconds, Vince.
09:51The biggest risk as you look the rest of this year into 2027.
09:55I think the mega trends I started with are the risks that we are going to continue to focus on,
09:59energy, cyber, and climate.
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