Whilst the worst of the Covid-19 pandemic is behind us, the disruption to business models, workforces, society and the economy is ongoing. At the same time, geopolitical tensions are mounting, exacerbated by chaotic and dubious leadership at home and overseas. Supply chain vulnerabilities, ESG, the global energy crisis, cyber insecurity, protest, extremism and strike action are rarely far from the headlines, and, now, research suggests that inflation and the so-called ‘cost-of-living crisis’ could risk stoking the fire, leading to further civil unrest.

Challenges to resilience are everywhere. And whilst the term ‘perfect storm’ cannot be simply wheeled out in every crisis, it could well be used to describe the environment in which businesses are operating today. Such geopolitical tensions and their knock-on effects ultimately pose challenges for the re/insurance industry amid heightened demand for risk protection.

In its renewals season forecast, Swiss Re said the re/insurance industry needs to focus on modelling and contract certainty to ensure pricing is adequate for the risks taken, thereby increasing capacity. In addition, the reinsurer warns that climate change is increasingly manifesting itself with “no end in sight”.

At the same time, Swiss Re does point to some significant opportunities to hedge this volatile environment. If countries deliver on building all the renewable energy capacity that they have so far targeted, it anticipates investments in green energy to generate additional energy-sector related premiums of US$237bn by 2035.

A general increase in risk awareness and exposures will also result in more demand for insurance protection across all businesses and regions, translating into a positive outlook for premiums. Swiss Re Institute expects a US$33bn increase in commercial premium volumes in the period from 2022 to 2026 as a result of supply chain reshoring, for instance.

Commenting on the outlook pre-renewals, Thierry Léger, Swiss Re’s group chief underwriting officer says the industry will keep up with increasing demand by addressing three factors: evaluating and modelling the evolving trends; ensuring a shared understanding of contractual terms; and generating improved technical margins to reflect the effective risk.

A similar tone was struck in Munich Re’s pre-renewals commentary, as the German reinsurance giant set out its stall in advance of renewals, warning of a further hardening in the market as capacity declines amid growing demand; and flagging the need for conservative assessments as a result of inflation.

The greatest challenge for the industry long-term, it says, is climate change. “The impact of climate change is evident and has been proven many times over. Insurers also have to gear their risk management to this reality. For example, we are cultivating new high-resolution risk models for regional events such as flash flooding,” says Munich Re’s Thomas Blunck. “Given the losses incurred, it is necessary to develop a deeper understanding of these events now in order to be able to take better precautions. In addition, a combination of greater prevention and a higher level of coverage through insurance is important, with risk-commensurate prices being the prerequisite.”

In the meantime, growing demand means the global P/C reinsurance market will grow at least as strongly as the primary insurance market until 2024, according to the firm. It estimates that the reinsurance sector will grow by two to three per cent worldwide from 2022 to 2024, when adjusted for inflation. The strongest growth is likely to be in Latin America, at four to five per cent.

This article was published in the Q3 2022 issue of CIR Magazine.

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