The impact of inflation and the increase in rates on the solvency of your surety insurer. How does EuroCaution protect its clients?

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Thursday 02 February 2023

The inflationary context, the general uncertainty on the purchase prices of raw materials and the increase in interest rates by the European Central Bank do not only impact the construction and real estate sector but also the insurance sector.

More specifically, this impact concerns the costs related to claims settlements on technical lines such as policies covering the risk of fire, water or electrical damage, as well as all-risk construction or ten-year liability policies, which have risen sharply without a corresponding increase in premiums. This puts our insurers at risk, especially after the floods of 2021 and some storms which could have had a significant impact on their solvency if they had not been properly reinsured.

In the field of financial guarantees for completion, we have experienced in recent years the bankruptcy of insurers active in Belgium and Luxembourg, such as CBL Insurance – distributed by an insurance broker still active in Belgium -, Elite Insurance or Gable. Recently, the French surety insurer Imhotep SA was placed under provisional administration because it does not have sufficient reinsurance, a shortfall of between 50 and 100 million to complete the houses guaranteed by the bankruptcy of the Geoxia group therefore represents an important risk.

The EuroCaution model has been studied to avoid any disappointment for our clients. This is evidenced by the Solvency 2 reports for the past 7 years, which prove that even in view of the increase in our exposure exceeding 3 billion euros, the solvency ratio of our insurer has remained stable, which attests to an excellent reinsurance.

EuroCaution’s partner insurer, Builders Direct SA, has only a minority participation in the risk that is guaranteed. In fact, EuroCaution has negotiated a proportional reinsurance treaty with a panel of 5 reinsurers who are part of the world’s TOP 15 and who assume 90% of all risks. They are jointly and severally liable with our insurer partner, which means that even in the event of our insurer’s bankruptcy, our reinsurer partners will assume either the completion or the reimbursement of the beneficiaries of our guarantees for all of the contracts that we manage.

It is not customary to provide a written list of our reinsurers, but I invite our readers to visit our Reinsurance Brokerage and Advisory Service page to learn more about our service and partners.

Alessandro Rizzo, CEO