Swiss Re highlights increased exposures
Swiss Re has said it expects insurance market premium growth to continue, driven by increased exposures, risk awareness and evolving client needs.
According to Swiss Re Institute, non-life insurance premiums are expected to be 10 percent higher than the pre-COVID-19 level by the end of 2021. Heightened risk trends will increase the need for insurance protection, but also require a greater focus on evaluating and modelling, and ensuring pricing is adequate for the risks taken.
The reinsurer also outlined what it believes will be the main talking points around the Rendez-Vous de Septembre 2021. These will include heightened risks, driven by longer-term trends and their implications.
Moses Ojeisekhoba, CEO Reinsurance at Swiss Re (pictured above), said: “There is a clear recognition that claims frequency and severity is rising as demonstrated by recent natural catastrophes or cyber incidents. This means the need for protection is growing, and the industry has important work to do in offering insurance and closing the protection gap.
“Swiss Re’s extensive risk knowledge and very strong capital position allow us to support our clients in their growth ambitions.”
Meanwhile, climate change poses the biggest long-term threat to the global economy, the reinsurer said. According to Swiss Re Institute, the world economy is set to lose up to 18 percent of gross domestic product from climate change by 2050 if no mitigating actions are taken.
It noted: “Especially the risks from secondary perils, such as floods or wildfires, are growing, also driven by urbanisation, exposing ever larger communities and assets to extreme climate events. Increased digitisation and interconnectedness are adding to the current risk landscape, for example in the area of cyber protection.”
Consequently, there is a greater need for insurance protection translating into a positive outlook for premiums as these will need to reflect increased exposures. According to Swiss Re Institute, non-life insurance premiums are expected to rise 10 percent above the pre-COVID-19 level by the end of 2021 to $6.9 trillion and surpass $7 trillion in 2022 for the first time.
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Aon unveils virtual reinsurance renewal season
For the second year running, Aon has launched a Virtual Reinsurance Renewal Season, which it says will provide insurers with the insights to make better business decisions as they approach the January 1, 2022, reinsurance renewals.
It described the insurance industry as navigating new volatility from long-tail risks such as climate change and COVID-19. It said its Virtual Reinsurance Renewal Season offers new perspectives to advise insurers on managing systemic risk and delivering increasingly relevant solutions to their customers. The platform aims to present the conference experience through insights on market dynamics, a newsroom, product innovation labs and Fireside chats with C-suite leaders and luminaries.
Andy Marcell, CEO of Aon’s Reinsurance Solutions, said: “It has been another extraordinary year as the world continues to mitigate the challenges of COVID-19 and tackle low interest rates as higher inflation begins to impact the global economy.
“As insurers seek to deliver increasingly relevant solutions and bring capital closer to clients’ risks while managing new forms of volatility, we aim to inspire better decisions that will drive insurer growth and relevance in the wake of the COVID-19 pandemic.”
Hosted by senior executives including chief executive officer Greg Case and president Eric Andersen, keynote speakers will include: The Hon. Julia Gillard AC, the 27th Prime Minister of Australia (pictured above); Peter Zaffino, CEO, AIG; and John Neal, CEO, Lloyd’s. Marcell added: “Aon remains committed to supporting insurers throughout the reinsurance renewal season, to deliver effective terms and structures that help protect and strengthen their balance sheets—whether virtually, or in-person in a safe environment.”
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Positive picture for reinsurers in H1: Willis Re
Global reinsurers performed well in the first half of 2021, with a further expansion of their capital bases and strong headline underwriting results and returns on equity (ROEs), according to the latest Reinsurance Market Report from Willis Re.
Total capital dedicated to the global reinsurance industry measured $688 billion after the first six months of 2021, reflecting a 4 percent increase from December 31, 2020. The rise was driven primarily by strong net income. To fuel organic growth in the positive rating environment, reinsurers typically retained more income than has been usual in recent years.
Reinsurers together achieved exceptionally strong premium growth of 15 percent during H1 2021. Their weighted average reported combined ratio was 94.1 percent, which closely matches the figures reported for the 2016 to 2019 half years. Despite abnormally heavy natural catastrophe activity so far this year, the ratio marks a dramatic improvement from the COVID-19-impacted 104.1 percent in H1 2020.
Reported combined ratios also benefited from slightly higher levels of reserve releases, reversing the trend of declining releases seen since 2017.
The reinsurers’ underlying half-year combined ratio, excluding prior year development, and normalising for natural catastrophe losses, has improved steadily since 2017. This continued in H1 2021, falling from 98.6 percent in H1 2020 to 98.4 percent. A lower expense ratio supported the improved combined ratios, as rapid premium growth more than offset rising costs.
The average ROE also rebounded strongly, assisted by improved investment returns. The reported ROE recovered from last year’s minus 0.7 percent to reach 13.9 percent, while the underlying ROE more than doubled to reach 6.3 percent. Nevertheless, the underlying ROE remains below the industry’s cost of capital.
James Kent, Global CEO, Willis Re, said: “Reinsurance providers will be heartened by these results. The industry has endured several years of below-par performance, capped by the calamitous experience of COVID-19. Now the remedial work reinsurers have undertaken over the past several years is bearing fruit.
“Unfortunately, though, very strong premium growth in the first half of this year was achieved against combined ratios which are not much lower than during the softer parts of the cycle, therefore leaving underlying ROEs still languishing below the cost of capital.”
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More cat losses fuel demand for reinsurance
Analysts expect reinsurers’ financial performances to “significantly improve” due to higher prices in a hardening market, a strong rebound in global economic activity and lower pandemic-related losses.
According to Moody’s, these positive factors should outweigh the negative effects of declining investment returns, increasing natural catastrophe claims due to climate change, and a temporary pick-up in inflation.
Moody’s has revised the outlook for the reinsurance sector to stable, a year after it was downgraded to “negative” in the midst of the pandemic.
“The stable outlook reflects our expectation that reinsurance price increases amid a global economic rebound will support reinsurers’ earnings and that the sector’s capitalisation will remain healthy, underpinning its credit strength,” the agency explained in its latest Global Reinsurance Outlook Report.
The economic recovery is fuelling demand for primary insurance, particularly commercial insurance, it noted, pushing up reinsurance requirements. Meanwhile, property reinsurance rises were supported by natural catastrophe losses and a re-evaluation of secondary perils, such as wildfires.
“Casualty prices remain strong because of higher demand, rising loss costs, and low investment yields,” it added. Helena Kingsley-Tomkins, VP-senior analyst at Moody’s, said: “Healthy price increases will drive stronger earnings through 2022 as the post-pandemic economic recovery and recent significant catastrophe losses fuel fresh demand for reinsurance.
“The sector’s capitalisation remains solid, with solvency ratios resilient in a range of stress scenarios.”
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