A recent report from Guy Carpenter has highlighted how players within the re/insurance industry are increasingly being forced to reassess their views of risk in light of loss accumulation from recent extreme weather events, uncertainty around climate change and higher loss cost trends in a number of long-tail business lines.
Despite the industry’s historical experience dealing with significant losses, Guy Carpenter notes how the record-breaking nat cat costs of 2017 and 2018 show how events that challenge underwriting risk assumptions can still impact deployment.
“Reinsurers operating in the Florida market, for example, have reassessed their views of risk to reflect increased social inflation costs associated with Hurricane Irma,” explained Robert Bentley, Chief Executive Officer, Global Strategic Advisory, Guy Carpenter.
“Due in large part to complex (and longer-tailed) loss drivers such as loss adjustment expenses and assignments of benefits, no other hurricane loss in recent history has developed adversely to the duration and extent of Irma.”
Furthermore, remaining uncertainty around climate change continues to outline a future in which more frequent and severe weather events will occur.
“All this has inevitably impacted the market and brought about a period of reflection as capital inflows into the reinsurance sector have slowed,” said Bentley.
“Risk models, already under scrutiny due to the magnitude of loss creep for virtually every major loss sustained in the last couple of years, will need to be re-calibrated.”
Bentley added that Insurance-linked securities capacity has been curtailed so far this year, with investors more disciplined in deploying capital and more determined to achieve higher returns. “Market conditions have tightened as a result,” he said.
Guy Carpenter’s report notes that in 2018, additional insured cat losses added to loss burdens, while creep from Hurricane Michael exacerbated the situation.
Nat cat events of 2018 included Typhoon Jebi, the strongest typhoon to hit Japan in 25 years, and yet another prominent example of adverse development.
Bentley went on to explain how costs for non-peak perils in recent years have also accumulated to make a significant contribution to industry losses,
“Wildfires especially have come under close scrutiny after losses in California in 2017 and 2018 spiraled to become significant reinsurance events,” he said.
“Such outsized losses are not commensurate with a view of risk that has considered wildfire to be an attritional peril.”
Guy Carpenter explained how the subsequent evolution of the risk landscape will be pivitol in shaping the future of re/insurance.
Concurrently, the industry’s landscape looks set to reshaped by the rise of new technologies shift from tangible to intangible assets and the transfer of liability from individuals to large manufacturers.
“By applying best-in-class analytical tools and creating innovative and bespoke solutions, Guy Carpenter is committed to obtaining the best cover and structures available in the marketplace for our clients,” Bentley concluded.
