What war, sanctions, inflation and looming recession mean for reinsurance

Despite inflation, flagging consumer confidence and slowdowns in GDP globally, reinsurers have been experiencing a firming cycle that’s lasted 19 consecutive quarters, noted David Priebe, chairman of global risk and reinsurance specialist Guy Carpenter during a Sept. 7 briefing call.

“Rolling rate increases on insurance coverages have improved earnings,” he said. “Risk profiles have been re-shaped through disciplined pricing and underwriting. Loss trends and loss picks are frequently being re-evaluated, as the environment remains uncertain.”

It’s hoped that financial firming will help the sector remain on a solid footing as challenges, including the war in Ukraine and rising spectre of social inflation play out into next year, call participants added.

“Losses from the Russia-Ukraine conflict are complex and for some classes will take time to be fully understood and resolved,” said global specialties CEO James Boyce. “Capacity in specialty classes remains buoyant, but challenges will persist around available coverage, so early engagement with markets will be important.”

Call participants noted losses from the war haven’t yet materialized but that it’s expected they’ll eventually work their way through the system.

“Spillover effects of sanctions on Russia have impacted many specialty classes—aviation, marine, energy, trade credit, war, terror and political violence,” added Boyce. “The first renewals were, on the whole, orderly. However, it’s been a different picture since the beginning of the conflict despite robust capacity levels.”

Cyber also will be a challenged sector, noted managing director and global co-head of cyber Anthony Cordonnier, who said the market will need advances in risk analytics tools to ensure its sustainability.

“[We’ve] pegged the 2021 year-end cyber premium to be $10 billion globally, and it is expected that this figure will rise to as high as $20 billion by 2025,” he told the call.

“The sector can leverage predictive analytics to identify risk-control efficiencies. This supports businesses to make more informed cyber security investment decisions, while also helping risk carriers to correlate cyber controls to portfolio performance.”

Market growth also has strained reinsurance capacity, added Erica Davis, managing director and global co-head of cyber. “As the demand continues to increase in the direct market and there is a continued lack of new entrants into the reinsurance market,” she said, “the squeeze on reinsurance capacity for cyber insurers will continue to be exacerbated.”

Call participants said new financing approaches—including instruments like quota shares, aggregate structures, event covers, catastrophe bonds and parametric covers—and a less-concentrated approach to reinsurance are among the solutions being explored to relieve the capital constraints for cyber.

Feature image courtesy of iStock.com/ronniechua