An interview by Teresa Zink
For HB Litigation Conferences LLC
Neal Moglin is a partner with Lovells, LLP’s worldwide Insurance and Reinsurance Group. For the past 14 years, his practice has focused on helping clients resolve complex disputes involving all types of insurance and reinsurance contracts. He is a co-chair of HB Litigation Conferences 16th Annual Insurance Insolvency & Reinsurance Roundtable to be held April 22 to 25 at the Fairmont Scottsdale Princess in Scottsdale, Arizona.
“The market is changing, and changing in a number of ways,” says Moglin. He points to the soft market and competition in reinsurance of the last several years. “There are a lot of people who thought rates were going to go up,” he says, but there are also some companies right now “that are motivated to retain business against some challenges.” That is nothing new, he explains. “That is just a function of the market. There is frequently a disparity in the players and it is not always a level playing field. You look to attract business the way you can and there might be some holding the line on rates that might be affecting other reinsurers. So the market is potentially changing and the market might tighten up, at least at the upper end.”
There also are new threats in the underlying insurance market, according to Moglin. “Underlying insurers, the ceding companies, are grappling with new products, new technologies, new threats like global warming and haven’t really decided yet, particularly in the area of climate change, how they’re going to react,” according to Moglin. “As a reinsurer it is very difficult to underwrite the underwriting of a direct writer – particularly in the D&O market or the environmental insurance market – if you aren’t sure how that market is responding to potential threats.”
Taking climate change as an example, Moglin notes that the Attorneys General of California and New York have “filed some pretty high profile litigation against car makers and energy companies.” Many of the suits were thrown out, but some were settled. “The interesting thing about the settlements is, at least in New York, the settlements required disclosure – financial reporting disclosure – of environmental and climate change risks. And that is extraordinary,” says Moglin. Some are pushing for even broader reform, such as mandatory disclosure in SEC filings of not only environmental risks but also what are known as ESG (environmental, social and governmental) risks, according to Moglin. Insurers, particularly D&O insurers, “are going to have to start thinking about what that means. So far directors and officers haven’t been sued over climate change, but that could happen. So how do the products respond?”
“On the flip side,” he point out, “there is a potential opportunity to market some innovative products to deal with these challenges, either on the D&O side but particularly in the area of environmental insurance. Could you sell an endorsement that specifically covered environmental risks? If you do that, are you then signaling that your current exclusions don’t protect you? Are you opening yourself up to a flood of litigation in the future?”
New threats always result in this kind of uncertainty, Moglin explains. “We are at an interesting and exciting time in the industry because this hasn’t happened in a while. So insurers are trying to come to grips with what their products do and don’t cover, and what, if any changes they need to make in their wordings, but also what if any changes they need to make in their underwriting.”
How Are the Reinsurance Markets Responding?
Reinsurers, “have to think about how the underlying insurance market is going to respond, and is responding,” says Moglin. In addition, “reinsurers need to take a step back and think about how they are measuring those responses. Particularly a reinsurer who reinsures direct writers should be asking: What are you looking at in terms of underwriting? What are you looking at in terms of policy wording? For their own part, reinsurers should be considering whether they need to add language to their existing treaty templates to protect themselves from some of these new threats.”