Speaking to The ReInsurer, the executive pointed to the current government-backed mortgage model in the US as a successful public-private partnership and a pre-existing structure that could be used to provide coverage for future pandemics.

“The mortgage model is a very good model to overlay on pandemic risk going forward,” Rajeh said. 

Such a partnership between public and private entities would enable the industry to provide a level of coverage in a range that is sized for its capital base, but where the government has the ability to come in with a backstop for the “really massive” events that exceed industry balance sheets, it should, Rajeh said.

“That combination of public private sector solution for pandemic is the way I think it should go,” he added. 

The executive described the Covid-19 pandemic as just “one brick in the wall of challenges”, with the industry entering 2020 already facing concerns over social inflation and higher than anticipated catastrophe losses. In particular, Rajeh voiced concern over capital costs and the sector’s ability to generate decent RoE. 

“The industry is not making its cost of capital, he said. “That means that we either have to find ways to reduce the cost of capital or find ways to up our prices and increase our margins.”

Commenting on the potential impact of the pandemic on renewals, Rajeh said the greatest concern remains the uncertainty surrounding the industry’s exposures to pandemic claims and the quantum of loss.

“Pricing will continue to harden,” Rajeh said. “This trend that we’re in is not just directionally going up but it’s also accelerating. The reasons for this started long before Covid. But Covid is adding uncertainty to this equation. This industry does not move on losses, it moves on uncertainty.”

Rajeh pointed to the pandemic’s impact on both the liability side of the balance sheet but also on the asset side as a result of the economic fallout as serving to push prices up further, particularly in long-tail classes of business.

“When you bring it all together it really speaks to prices going up, margins have to inflect up and returns on capital have to go up. If your cost of capital is about 7 or 8 percent then you cannot return 5 to 6 percent RoE and feel like you’ve done a good job”, he added.

The executive also pointed to the continued pressure on interest rates as a “fifty-year-plus trend”. With US interest rates at a 60 year low, Rajeh forecasts that long-tail lines will be the largest beneficiary of rate increases.

“This speaks to long-tail lines; anything with duration in it and where investment income matters and is a part of the equation. Here I’d say that professional and liability lines are the lines that really have to inflect.”