Global reinsurer Swiss Re has noted that the non-life reinsurance market is expected to grow above GDP for the next decade, 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% adjusted for inflation,” Swiss Re explained.
After years of weak performance and above-average natural catastrophe activity, the firm said that the market is reverting to a more sustainable level of risk-adjusted pricing, a trend expected to continue in the January 2024 renewals.
These insights come as part of a new report in which the reinsurance giant commented on the industry’s current state and highlighted key market trends at the Rendez-Vous de Septembre.
Urs Baertschi, Swiss Re’s CEO Property & Casualty Reinsurance, said, “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.”
As demonstrated in 2023, Swiss Re said that risk profiles continue to evolve and insured losses in excess of $100 billion per annum are expected to recur, strongly impacting the property re/insurance market.
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.
Swiss Re noted that the balance between reinsurance capacity and increasing demand is critical. the firm noted that primary insurers are best suited to absorb frequency and attritional losses, while reinsurers are reverting to their core function, of supporting insurers in recovering from large loss events as seen in the earthquake in Turkey earlier this year. This trend towards a more sustainable balance in risk sharing is expected to continue.
Meanwhile, Modelling for secondary perils such as wildfires, floods and hail “remain challenging and the effects of climate change are becoming more evident as a result of increasingly extreme weather events.”
Gianfranco Lot, Swiss Re’s Chief Underwriting Officer, Property & Casualty Reinsurance, added, “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.”
According to Swiss Re, the casualty market also faces a number of issues, with social and economic inflationary pressures driving up claims costs. Litigation funding grew by 42% from 2019 to 2022, and analysis shows that between 2014 and 2021, the number of awards over $5 million in US courts grew by 54%, added the reinsurer.
Predominantly a US phenomenon, this trend is expected to continue with signs that it is emerging in other parts of the world. In such an environment, greater data transparency will be required to understand the underlying exposure associated with emerging risks and to navigate upcoming challenges effectively.
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-riven solutions will play an important role.
Moses Ojeisekhoba, Swiss Re’s CEO Global Clients & Solutions, said, “Building on our risk knowledge and in-house digital capabilities, Swiss Re’s suite of solutions goes beyond our core function as a reinsurer. We help primary insurers better utilise data and analytics to simplify product offerings, reposition portfolios and improve overall performance, and ultimately position them for future growth.”