The reinsurance market remains “strongly positioned” to support insurers even as the risk landscape continues to undergo rapid change, according to a new report from Guy Carpenter, the reinsurance arm of Marsh.
Guy Carpenter observed that the risks at the top of re/insurers’ agendas have shifted from largely economic concerns 10 years ago to issues such as technology, extreme weather and climate change today.
The status afforded to these last two concerns is unsurprising given the number of major natural catastrophe losses that occurred worldwide in 2017 and 2018, it noted.
However, analysts believe the strong capitalisation of the reinsurance sector means it remains well-equipped to deal with these challenges, even as capital inflow has slowed somewhat this year.
“Crucially, the sector has more than sufficient levels of capital relative to risk,” the report stated. “Capacity was still adequate during this year’s mid-year renewal season, even as underwriting assumptions were adjusted to reflect the changing nature of risk.”
Guy Carpenter also believes that, based on recent market behaviours, a more sophisticated and tailored approach to renewals is likely to prevail over the volatile and often indiscriminate reinsurance rate movements of the past.
Reinsurers are expected to scrutinise cedant’s performance and loss experience in recent years and allocate capital accordingly, it explained.
Such caution is likely to be necessary as the complexity of the risk landscape grows, the report indicated, particularly in terms of additional loss components from storms and other extreme weather events, which have resulted in ongoing adverse developments some recent losses.
Costs for ‘non-peak’ perils have also made a significant contribution to industry, Guy Carpenter added, with unprecedented wildfire costs in California being the most arresting.
“Ominously, the specter of climate change points to a future that will see only more frequent and severe weather events,” the report continued. “Risk models will need to be recalibrated to accommodate this.”
“If the last two years provide any sort of template for what can be expected in years to come, loss development for major events will be uncertain and the scale and severity of “attritional” perils will accentuate protection gaps. This raises important questions about insurability and relevance in the long term.”