Demand increases but industry needs to address nat cat insurability – Swiss Re

The annual Rendez-Vous de Septembre in Monaco began with a call to the market to work to ensure that natural catastrophe risks remain insurable.

Gianfranco Lot, Swiss Re’s chief underwriting officer, Property & Casualty Reinsurance, made the call as reinsurers, insurers and brokers gathered in a principality for the annual reinsurance event.

Swiss Re warned rising losses from natural catastrophes are strongly impacting the property re/insurance market.

“As demonstrated by the many events across the world in 2023, risk profiles continue to evolve and insured losses in excess of $100 billion per annum are expected to recur,” the reinsurers warned. “Demand for natural catastrophe property reinsurance is likely to remain high as exposures keep increasing. At the same time, the main risk drivers remain unchanged: extreme weather events, urbanisation, higher property values and inflation.”

The reinsurer added this year an important discussion point will be the balance between reinsurance capacity and increasing demand. Primary insurers are best suited to absorb frequency and attritional losses, while reinsurers are reverting to their core function, which is supporting insurers in recovering from large loss events such as the earthquake in Turkey earlier this year. This trend towards a more sustainable balance in risk sharing is expected to continue, Swiss Re explained.

It expects secondary perils such as wildfires, floods and hail will also be a topic, as modelling such perils remains challenging and the effects of climate change are becoming more evident as a result of increasingly extreme weather events. To achieve more predictable outcomes, greater data transparency and investment in predictive capabilities are required. Swiss Re said it is carefully monitoring these exposures and has taken action to manage the evolving risk landscape.

Lot said: “For the industry it’s important that risks remain insurable. That’s why Swiss Re has been talking about climate change for so long and we have taken such a strong position on it. We continue to invest significantly in our own risk models and are ready to support and grow with our clients in the natural catastrophe business.”

As such to grow and advance insurance offerings in the fast-changing market, the need for greater efficiency is becoming an increasingly relevant topic in the insurance industry. In this, data- and tech-driven solutions will play an important role, the reinsurer added.

Both risk awareness and the demand for re/insurance is increasing, only highlighting the need for improved underwriting data, enhanced modelling and rebalancing of the insurance value chain for a sustainable reinsurance market.

Swiss Re  added the central themes will be the increasing demand for re/insurance protection in an environment marked by heightened volatility and the continued need for risk-adequate returns.

Against this backdrop, the non-life reinsurance market is expected to grow above GDP, driven mainly by inflation and urbanisation. The 10-year outlook for the market in USD shows nominal growth of approximately 5.4% per year, or around 3% if adjusted for inflation.

Following years of weak performance and above-average natural catastrophe activity, the reinsurance market is reverting to a more sustainable level of risk-adjusted pricing. This trend is expected to continue at the upcoming January 2024 renewals.

Urs Baertschi, Swiss Re’s CEO Property & Casualty Reinsurance, added: “Strong partnerships between insurers and reinsurers, improved underwriting data, and, to a degree, a rebalancing of the risk sharing between insurers and reinsurers will be necessary for a sustainable industry and to ensure reinsurance can fulfil its core function as a shock absorber of peak risk.”