Post-Monte reflections: what’s bugging the market?

Emerging Risks has returned from this year’s Reinsurance Rendez Vous, and, (after a hiatus of two years caused by COVID) it was fantastic to interview and mingle once again, in the flesh, with so many people from across the market, whether they be reinsurers, brokers, cedants, rating agencies, or service providers.

How different the mood was this year, however, with concerns over various key emerging risks, including war, cyber and climate really dominating the various discussions.

I suppose it’s fair to say that the re-emergence of inflation was certainly one of the most prevalent emerging risks that was brought up in our various conversations, with the re-emergence for the first time in decades of double-digit inflation a serious concern for underwriters, not only for property underwriters but also those in the casualty sphere. Why? Because, as analysts at Berenberg recently pointed out, claims are mainly set in real terms as non-life contracts are indemnity contracts. This is a real problem for liability policies, because the claim is usually paid many years after the policy premium is received, and the effect of inflation compounding, particularly for medical costs, can be extremely severe.

Other concerns cited at the Rendez Vous were the continuing instability caused by the war in Ukraine, already cited as first half loss of some £1.1bn for much of the Lloyd’s specialty market, and one whose repercussions are already causing severe disruption for Western economies.

Climate change, as well as it should, continues to be a real issue as the market begins to grapple seriously with the scale of the disruption and damage caused by rising temperatures around the globe, with Munich Re now describing Europe as a heatwave risk, for example.

And this is not merely empty rhetoric. There has been a tangible contraction of capacity in the property cat market as many carriers have decided to de-risk their portfolio. 

For reinsurance brokers, all of this almost certainly means a more challenging 1.1 renewal season and some difficult discussions in the weeks ahead. For the wider market, however, I have the queasy feeling that the real risk challenges are only just emerging.

Marcus Alcock,

Editor, Emerging Risks