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2021 fast becoming the year of ESG: Guy Carpenter execs

10th September 2021 - Author: Matt Sheehan

During a recent briefing hosted by Guy Carpenter, industry executives claimed that environmental, social and governance (ESG) issues have become more important than ever for reinsurers this year.

financial-climate-riskJessica Turner, Managing Director for Catastrophe Advisory at Guy Carpenter, highlighted the growing significance of ESG risks during a discussion that focused on how the industry has continued to demonstrate resilience despite a volatile operating environment.

“While the last 18 months have been dominated by the COVID-19 pandemic, 2021 is fast becoming the year of ESG,” she told other executives on the panel.

“Climate change and other environmental risks remain a key concern for CEOs around the world, both in terms of likelihood and their impact. Additionally, ESG has become a topic at the top of many company agendas driven by expectations across an array of stakeholders, including investors, regulators, ratings agencies, employees and clients.”

Other key issues explored during the briefing included evolving market conditions, capital developments, insurance-linked securities growth, and drivers of change, including technology and the expanding cyber threat.

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Lara Mowery, Global Head of Distribution at Guy Carpenter, led the panel and drew attention to the pricing trends that have defined 2021 so far.

She noted that, while the first six months of the year saw pricing continue to firm, mid-year placements indicated moderating increases in average pricing due to the strong capital position of the sector and general economic rebound.

With a view toward January renewals, she added: “Some drivers of uncertainty are dissipating. Primary rates are stabilizing, and ample traditional, as well as alternative capital, is bolstering the sector. Reinsurers’ risk appetites and product offerings continue to evolve in response to emerging market realities, and differentiation remains valuable.”

Sebastian Cook, Managing Director, Head of London Europe, offered further insight into property market conditions, noting a 6% increase in the US Property Catastrophe Rate-on-Line (ROL) Index for renewals from January through July, and 5% in Asia.

“Overall ROL levels were impacted by several factors, including some upward shifts in retentions, particularly on loss-impacted programs, additional limits purchased on the top end of programs and increased pricing,” Cook explained.

“More broadly, the concerns about exposure from secondary perils and climate change were offset by abundant capacity, the effect of compounding rate increases and strong appetite for growth.”

Turning to developments on the casualty front, Christopher Ross, Managing Director for Treaty Broking, highlighted how multiple counterbalancing factors are impacting the marketplace, with capacity reductions, retention increases, coverage restrictions and a greater focus on client risk-management strategies affecting levels of rate increases.

Commenting specifically on the reinsurance marketplace, he said: “Engagement between all parties has been remarkable during this unprecedented period. Heading into year-end renewals, we expect this positive momentum to continue and lead to an orderly renewal period with ample capacity to support cedents’ reinsurance strategies.”

On this point Shiv Kumar, President of GC Securities highlighted the growth of the catastrophe bond market over the past 12 months, which he says is on track to have a record issuance year.

“In the first six months of 2021, we saw $7.9 billion in new bond issuance via 27 different transactions for 26 unique sponsors,” he remarked. “A growing number of reinsurers are exploring this market as an efficient substitute for retrocessional capacity through aggregate industry index-based structures.”

Finally, Erica Davis, Managing Director and Global Co-Head of Cyber, commented on the growing impact for cyber risk, which has experienced a “year of change” through 2021, she says.

“Across the industry, loss-development assumptions for cyber risk are again being revisited in 2021, to reflect the effect of the current claims activity,” Davis said. “For attritional impact, a higher propensity of cyber incidents, particularly ransomware attacks, is likely to hinder a near-term reversal of claims-cost trends. Responding to a continued uptick in both frequency and severity, this was the year for cyber underwriters to take action.”

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