Banking firm Berenberg has posited that investors should be looking to the reinsurance market, especially considering the growth potential it holds arising from climate change.
The argument, put forward in a recent newsletter, says that the current protection gap can spur innovation in product development. Berenberg put this in the context of 2021, where it says that economic losses totalled $280bn, compared to insured losses of $120bn.
Kathryn Fear and Tryfonas Spyrou, analysts at Berenberg, wrote in the newsletter: “This highlights the significant burden that society can face when disaster strikes and this is most visible in those regions with low insurance penetration.”
The pair drew attention to Swiss Re’s 2019 analysis of the protection gap, writing: “[Back then, the company] estimated that a significant proportion (more than half) of the protection gap is due to underinsurance of secondary-peril risk as a result of the fact that risk assessment of secondary perils can be difficult. This is because they are often highly localised, but with variables that are in a continual state of flux given land-use changes and the greater occurrence of extreme weather.”
They added: “However, Swiss Re believed that fostering consumer awareness, developing a greater product range and targeted distribution for catastrophe covers could all provide opportunities for growth, while also helping more of the global population be better prepared to manage the financial hardships that disaster events can inflict.”
Fear and Spyrou noted the ‘strong growth prospects’ that have been lain out by Swiss Re, pointing to the reinsurer’s prediction that global premiums for property insurance will grow by 5.3% a year, reaching $1.3trn by 2040.
The pair wrote: “Here is where the upside from climate change is felt as it estimates that climate risks will increase the property risk pool by 33-41%, generating $149bn-183bn of new premiums. It also predicts that the share of catastrophe in all property premiums will rise from 20% in 2020, to 28-31% in 2040. However, this growth in premium is needed to offset its prediction of a 30-63% rise in catastrophe losses due to a higher frequency and severity of events relating to climate change.”
Such remarks can be placed against what Reinsurance News has called ‘a trend of underperformance among reinsurers’, which Berenberg has indicated is ‘ripe for reversal’. The bank believes that the sector globally performed poorly last year, aligning this to the continuation of elevated catastrophe losses.
