While the current economic environment is still difficult, it brings not only challenges, but also creates opportunities for the re/insurance industry in Europe, said Thorsten STEINMANN, Head P&C Reinsurance Northern, Central & Eastern Europe at the Swiss Re pre-Baden Baden media conference, on 18 October.

He provided several examples on how different economic indicators are relevant for the industry:
 

• Elevated inflation levels persist and may put pressure on claims costs across various business lines. In the Eurozone, the underlying inflation level stood at 5.5% in 2023 and is expected to be 2.6% in 2024. Inflation surge is increasing claims severity for European P&C insurers in motor insurance: while current inflation has a strong impact in particular for the motor physical damage, a persistent inflation will drive up bodily injury claims, as it broadens out to wages and higher healthcare costs.
  Moreover, social inflation ceased being a US-specific issue. The increase in class actions filed is expected to accelerate due to the EU Representative Action Directive, STEINMANN said. For the time being, the UK and Netherlands are the theater for most class actions filed in Europe.
• Higher interest rates had a positive impact on the re/insurance industry, allowing for increasing investment income. While the negative nominal yield era is clearly over, the European Central Bank will most likely keep interest rates tight for a while.
• Elevated uncertainty and volatility stimulates a stronger demand for reinsurance in the current geopolitical and macroeconomic environment.
• Growing reinsurance market - Growth is driven by new risk pools catalyzed by digitalization, higher risk awareness and increasing insurance penetration in emerging markets. The P&C reinsurance market in Europe is expected to grow by 3.5%2 annually until 2033.

One of the strongest growth drivers for the re/insurance industry is the increase of the natural catastrophes insured losses, which leads to a higher demand for natural catastrophe reinsurance.

Global insured losses in excess of USD 100 billion per annum are expected to recur. As until end July 2023, global insured losses from natural catastrophes were already at USD 50 billion, the year-end may easily dhow another >USD 100 billion loss year.

“We project that insured losses will continue to grow at 5–7% per year, irrespective of year-on-year volatility and even when real-time amplifying factors such as high inflation subdue. We expect demand for additional natural catastrophe reinsurance cover of EUR 4–5 billion in EMEA this year; of which EUR 1 billion in Germany alone,” Thorsten STEINMANN said.

However, events of catastrophic dimensions are not the only source of important losses. Secondary perils pose a growing threat, while the protection gap is widening, stated Nikhil da VICTORIA LOBO Head P&C Reinsurance Western & Southern Europe, on the same occasion. He explained that insured losses from primary and secondary perils in EMEA have increased continuously. High severity secondary peril events of the magnitude of the floods in Germany, in 2021, hailstorms in France, wildfires in Southern Europe etc. are seen more often and are becoming a real threat. “Better monitoring and sharing of granular exposure and claims data for secondary perils is required,” Nikhil da VICTORIA LOBO said. He also explained that the Nat Cat protection gap is widening in the EMEA region. Since 2012, the gap in the overall EMEA region has grown by 30%, from USD 55 billion to USD 72 billion. The growth rate was of 26% in the developed EMEA and of about 33% in the emerging EMEA countries. In fact, “there were more uninsured catastrophe losses than insured ones, with only 36% of total losses insured from 2012 to 2022,” he said.

At the same time, the risk landscape is becoming more complex as the exposure to SRCC (strikes, riots and civil commotion) is on the rise and further exacerbated in the aftermath of the pandemic and the Ukraine crisis. While SRCC-related events are producing costlier losses, the industry is also concerned over the large potential accumulation of SRCC events.

In this complex environment, where the risk drivers of climate change, demographic change and inflation remain unchanged, maintaining property risks insurable requires a sustainable re/insurance market. Using data and tech to improve the industry’s understanding of future risks and opportunities, as well as increasing the insurance penetration through public-private partnerships and industry cooperations are instrumental to keeping property risks insurable in the future, the Swiss Re representatives stressed out.