Partnering for progress in an evolving risk landscape

It's almost September, which in the re/insurance industry means conference season starting with Monte Carlo is just around the corner. Insurers, brokers, and reinsurers are preparing their key messages that will help set the tone for the re/insurance landscape in 2024. 

In each of the last five years, some dominant themes emerged: In 2019, it was about whether conditions would start to firm up, while in 2020, all eyes were on the pandemic. By 2021, growth and cyber returned strongly even as COVID continued. And in 2022, as the tragic war in Ukraine dominated headlines, conference season was squarely about the hard market's arrival, even before Hurricane Ian set the industry on a bumpy ride into the January renewals.

Though this year's meetings are still a few weeks off, it's fair to say that several key topics are already taking shape.

Our recent 2023 State of the Reinsurance Property Catastrophe market report underscores clear trends, including average insured losses of USD 110bn per year since 2017, average insured loss growth of 5-7% per year over the last 30 years, and the increasing influence of secondary perils on losses. 2023 is already shaping up similarly, with global insured losses from natural catastrophes amounting to USD 50 billion for the first half of 2023 and a very active Q3 under way.

Against this backdrop, it's critical re/insurance product features and rate adequacy keep pace with rising risks. In 2023, we have started to see a return towards a more sustainable balance in risk sharing across the value chain. Primary insurers are best suited to absorb frequency and attritional losses, while peak severity losses such as the earthquake in Turkey have been largely transferred to reinsurers as shock absorbers. This is a necessary path which is expected to continue.

In property insurance, when disasters hit, the costs emerge very quickly. By contrast, in casualty, it can take several years for costly issues to emerge and challenges to accumulate. Economic inflation affects both.  In shorter tail lines it's mostly about replacement cost which have gone up significantly in recent years driven by supply chain shortages.  Longer tail lines are also impacted by wage inflation, which is starting to show up more and more and driving up claims values in casualty. 

In addition to economic inflation, the post-pandemic comeback of social inflation in the form of outsized jury awards in liability and motor claims in the US remains a significant concern. Driven by negative sentiment towards corporations, a growing litigation funding industry and an increasing propensity to sue, the total sum of nuclear verdicts jumped from $4.9 billion in 2020 to a staggering $18.3 billion in 2022. There's no sign that this trend will retreat any time soon, and while it is predominantly a US phenomenon, we are seeing it emerge in Europe and elsewhere.  With these developments and the associated uncertainties, structures, conditions and pricing in our industry will need to reflect this evolving risk landscape.

Insured values are rising and our risk landscape is changing. While investment gains from higher interest rates are a welcome development, other pressures on balance sheets and capital strategies are real. Insurers are challenged by more risk, more volatility, and more uncertainty as climate change, inflation and geopolitical fragmentation converge. With all these uncertainties, new opportunities are presenting themselves, with demand for protection increasing from insureds as well as insurers. As reinsurers, we are uniquely positioned to help our clients adapt to and mitigate these risks while also exploring growth opportunities. We must do so in a sustainable manner across the value chain, and this means working together to anticipate, manage and share risk appropriately.

Our industry's growing embrace of technology and data also present big opportunities that need to be balanced with the threats they present. Partnerships are particularly critical as we focus our tech resources to drive profitability and accelerate growth. With an increasingly digitised customer experience, our industry can further simplify and standardise product offerings. With better management and utilisation of data, we can assemble valuable insights that improve overall performance. Smart use of data helps us reposition our portfolios, to unlock and deploy capital more effectively while driving better risk awareness and prevention.

Let's see which theme will be most prominent during this year's conference season as we look forward to our discussions and finding ways to partner more closely for progress.