High inflation was mentioned as reason for concern by most reinsurers, as well as the rating agencies. Strongly driven by the supply chains crisis, inflation rates started increasing by mid-2021 and most likely, the trend will continue. This will make underwriting more difficult at the forthcoming renewal, especially for multi-annual risks.
According to Thierry Leger, Swiss Re Group's Chief Underwriting Officer, high inflation will mostly impact motor, property and casualty insurance lines because of the claims inflation. Especially in casualty insurance, wage inflation and medical costs inflation should be considered in addition to the CPI.
The geopolitical crisis is another important reason of concern. The war in Ukraine has already amplified the supply chain crisis and triggered an unprecedented energy crisis, as well as a developing food crisis. Moreover, as Jean Paul Conoscente, CEO SCOR Global has remarked, the war in Ukraine may be also seen as an indication of a refragmentation trend in the world which makes operating globally more difficult.
Climate change remains a stress factor, especially considering the fast growing of the assets exposed to risk. Secondary perils are particularly relevant in this equation, their share in the total NatCat losses amounting to about 50%. While Nat Cat risks tend to become more unpredictable, models are less relevant, and the cost of capital is rising. For the time being, these three elements coming together are impacting on reinsurers' appetite for underwriting NatCat risks. While Swiss Re has clearly stated its determination to maintains its NatCat business, other reinsurers as SCOR have adopted a more nuanced attitude, maintaining their interest in Nat Cat to the extent that they can get the right price. As such, the forthcoming renewal season will most likely see a rise in reinsurance rates for NatCat.
Overall, there was an often-heard opinion that reinsurers need to somehow redefine their role, so that the industry avoids losing relevance in a challenging and complex environment. "How reinsurers position themselves against sustainability and use of technology will be defining them for the future," summarized Laurent Rousseau, CEO, SCOR.