Higher property values, urbanization, and increased repair costs due to inflation are likely to drive demand for property re/insurance, particularly in regions facing heightened natural catastrophe risks.
Swiss Re Institute reports that global insured losses from natural catastrophes exceeded $100 bn for the fourth consecutive year in 2023. In 2024, the trend continues, with $60 bn in insured losses recorded in the first half of the year, 62% above the ten-year average.
The key topics for the reinsurance industry remain largely unchanged from last year, but the challenges have intensified, leading to higher demand
Urs Baertschi, Swiss Re’s Chief Executive Officer Property & Casualty Reinsurance
There is also rising demand for re/insurance in engineering, driven by the positive outlook for the construction industry, especially for renewable energy projects.
Global reinsurance market
Global reinsurance market delivered strong results in the first half of 2024 with further improvement in underwriting profitability, exceptional ROEs and a continued building of capital. Earnings resilience has further increased through a higher underlying ROE which provides reinsurers with additional buffer to absorb headwinds.
Revenue growth remained strong in 2024 at 9%, similar to the 2023 growth rate. Growth was driven primarily by rate increases rather than volume growth.
Volume growth was limited due to shifts in business mix and rising attachment points.
The improvement was primarily due to a reduction in the attritional loss ratio (from 68.8% to 66.5%), reflecting rate earn-through and less reserve prudence from some firms, alongside a lower impact from natural catastrophe losses (from 6.8% to 5.6%).
Impact of Natural Catastrophes and Cyber Risks
Swiss Re named NatCat risks, economic uncertainty and geopolitical instability among the main reasons for which direct insurers seek reinsurance protection.
According to Swiss Re, this complex environment presents also opportunities, with Swiss Re focused on supporting clients in understanding the risks and providing tools to help them grow (see Impact of Natural Catastrophic Risks).
Swiss Re expects the global non-life reinsurance market to grow by 3.2% p.a. until 2025
Swiss Re expect hard markets conditions to persist in 2023, based on rising demand for coverage and inflation-driven higher values of insured assets. On the supply side, a reduction in risk appetite on the part of capital providers has constrained market capacity. Interest rate hikes to fight inflation have also played a role, by increasing the cost of capital and reducing the value of financial assets.
To support the green energy transition, Swiss Re launched a Centre of Competence for Renewable Energy with expertise and products in managing their renewable energy portfolios.
Swiss Re expects demand for reinsurance to grow, not only in risk capacity terms, but also in risk management expertise
The cyber insurance market is primed to continue its growth trajectory as awareness of both the frequency and sophistication of cyber attacks is increasing following several incidents this year. Here, the management of accumulation risk will be critical to allow efficient capital allocation.
Cyber insurance market is set for outsized growth compared with other lines of P&C insurance over the coming 10 years. There is some concern, however, about what factors must come together for this growth to be achieved — especially in light of slow-to-declining premium numbers for the US standalone market.
Cyber insurers will continue to face challenges in maintaining underwriting discipline as market competition grows and the claims environment evolves due to rapid technological changes.
According to CyberCube’s report, “Projecting Cyber Insurance Growth: A 10-Year US Market Outlook”, noted that this rapid growth will be driven by the increasing digitisation of the global economy and rising concerns about cyber risk.
Litigation Reinsurance Trends
The US litigation environment poses a growing concern. Liability insurance claims have increased faster than economic inflation over the past decade, with a surge in large court verdicts. In 2023, there were 27 cases where courts awarded over $100 mn in compensation.
If current trends continue, the impact of claims growth will likely outweigh the benefits of higher interest rates on casualty lines within one to two years, potentially reducing available capacity further.
Reinsurers are needed for more than just providing risk capacity. Modeling expertise, updated assessments, and management of exposures are increasingly critical.
Effective data flow through the risk value chain is essential for improving models and providing accurate, forward-looking scenarios for risk pricing.
- Looking at the components of the underlying ROE, the improvement in underlying underwriting income and running investment income are key factors behind the increasing underlying ROE.
- The increase in the underlying underwriting margin is driven by the meaningful improvement in underlying combined ratio. The underlying reinsurance underwriting margin increased from 2.7% a year ago to 3.9%.
- The increase in interest rates has materially increased the running investment income and as a result the investment margin contribution increased to 11.3%, from 10.5%.
Economic Uncertainty on the Re/Insurance Market
Reinsurers must lead discussions across the insurance value chain to address emerging perils, such as extreme weather, rising jury awards, and cyber threats. Accurate and timely data is crucial for model recalibration and risk-adequate pricing.
The insurance industry has shown time and again that it can rise to the challenge of a rapidly changing risk environment. To further progress as an industry, we need to leverage data better to predict future risk without being too anchored in the past
Gianfranco Lot, Chief Underwriting Officer Property & Casualty Reinsurance
Insurers also seek value-added insights and solutions from reinsurers to better understand and mitigate risk, drive innovation, and enhance performance. With current economic uncertainty, managing capital and volatility is a priority. Structured reinsurance solutions can offer protection against volatility and support growth plans by improving capital management efficiency.
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AUTHORS: Urs Baertschi – Swiss Re’s Chief Executive Officer Property & Casualty Reinsurance, Gianfranco Lot – Chief Underwriting Officer Property & Casualty Reinsurance
