ILS leaders ponder Florida models' accuracy

ILS leaders ponder Florida models' accuracy

The question as to whether Florida natural catastrophe is still the "best-priced business" is something of a philosophical one, according to Niklaus Hilti, head of insurance-linked strategies at Credit Suisse.

Speaking at ILS Insight, a panel meeting organised by Guernsey International Financial Centre at the Park Hyatt Zurich on Wednesday, Hilti said that "the way you look at the risk is; if you believe the models, I would say, yes, it is the most profitable business". However, he added, "if you are asking me whether I believe it is the most profitable business, I think the models need a little bit of adjustment. It's becoming very coastal. I just personally believe the models are not capable of reflecting such a specific risk type. Correctly. So from that perspective I would say, it is still certainly amongst the most profitable businesses, but the margin has reduced dramatically over the past two years."

Hilti said that he would be careful on believing that the models just tell the truth there. He did not think that there was a lot of room for premium reductions in the Florida risk space.

Piers Cantlay, chairman of Aon Benfield Global Re Specialty and a specialist in the retro space, observed, "you just have to fly over Florida and you thin ... it's flat, I think there was $2bn worth of damage from pool covers alone from the last hurricane that hit nine years ago. Everybody seems to want to live there, but the models tell you it's a good risk to write. I'm a bit with Niklaus (Hilti) on that one. The gut feeling is there's a massive concentration of exposure.

Jonathan Barnes of Securis Investments said that it was the dominant risk in US wind, followed by the North-East and then by Texas. "It's very vulnerable. I would say that the most attractive risk; because there is an abundance of Florida risk in the industry, the most attractive risk is something that pays a similar margin, but which is diversified."

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