After the hottest month ever recorded globally, reinsurers have named climate risk as the most urgent risk. Reinsurers are also the only segment of the insurance industry to name de-globalisation as a top ten risk, a PwC/CSFI report shows

September has arrived. For many of us that means the end of the summer, for some, the return to school, while for others, it means the Rendez-Vous de Septembre – the Reinsurance Rendez-Vous held annually in Monte Carlo since the 1950s.

The risks faced by reinsurers sixty-five years ago bear little resemblance to those they worry about today, and in the latest edition of its biennial research, the wittily titled Reinsurance Banana Skins, PwC and CSFI can reveal that it is climate change that keeps most reinsurers awake at night.

Cyber crime, a failure to keep up with technological change, scarcity of human talent and the impact of regulation round off the top five risks, according to the report. Artificial intelligence comes in sixth place.

The report’s authors surveyed the risks facing the insurance industry in mid-2023. The reinsurance findings are based on a subset of the wider research. There were 41 responses from the reinsurance sector, based in 14 territories.

Survey respondents were asked how well prepared they thought the industry was to handle the risks they identified. On a scale of 1 (poorly) to 5 (well) reinsurers gave an average response of 3.41, above the average of 3.20 and the highest of all sub-sectors (composite 3.38, life 3.14, P/C / non-life 3.13).

Noting reinsurers’ strengths in data and analytics, the report’s authors believe this optimism could reflect their confidence around their ability to harness the power of new technology.

PwC foresees wide-ranging impacts for reinsurers resulting from the risk of climate change, including pricing, legal liabilities and changing consumer behaviour, alongside the challenge that the transition to net zero poses to reinsurers’ own operations.

“Reinsurers are acknowledging that the effects of climate change are already being felt. Combined with the fact that reinsurance is the most optimistic of all the insurance sub-sectors when assessing its preparedness to handle risks, these results make the case that now is the time to think differently and find solutions,” says Andy Moore, PwC UK partner.

“It’s impossible to fully prepare for such a fast-changing and unpredictable risk, but the sheer scale of the impact on almost all areas of the market means doing nothing is not an option. Well-run companies are already taking action to enhance risk modelling, re-assess the resilience of their portfolios and implement strategic risk management reviews.

“Due to the ever-changing nature of this risk, companies need to put controls in place to ensure they have confidence in the data, infrastructure and policies they will rely on to remain agile in the face of the climate emergency and its repercussions. Doing this will put reinsurers in the strong position they need as they play a key role in managing the wider global transition to net zero.”

Reinsurers vs. the wider insurance industry

Compared with their counterparts in other areas of the insurance market, reinsurers showed considerably lower than average concern about their sector’s ability to achieve cost reductions to remain competitive, and its ability to manage change.

On the other hand, reinsurance was the only sector to place de-globalisation in its top ten risks, possibly reflecting the global nature of this segment of the insurance industry, and its concern about protectionism. The sector was also more concerned about availability of capital, and credit risk, reflecting some of the challenges seen in the market over the last year and the recent implications of some alternative capital structures.

There was a note of concern about the reinsurance sector in the responses from other sectors, particularly as regards to capacity and credit strength in the face of large catastrophe claims. Access to reinsurance was also identified as a risk. The outlook was seen to depend on whether capital would shy away from the sector, or be enticed by hardening rates.

This piece was published in the Q3 2023 issue of CIR Magazine.

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