Reinsurance capacity bouncing back, although future remains uncertain

Which regions will see the most substantial growth?

Reinsurance capacity bouncing back, although future remains uncertain


By Kenneth Araullo

The market outlook for reinsurers holds promise but also increased uncertainty, according to new insights by Munich Re.

Between 2023 and 2025, the global reinsurance market will experience a modest uptick in real average annual growth, slightly below levels during 2020 and 2022. Munich Re predicts the most substantial future growth for the Asia-Pacific and Latin America regions.

Data sourced from AM Best and Guy Carpenter also indicate that reinsurance capital is projected to rebound to US$461 billion (£369.5 billion) in 2023 (compared to US$434 billion in 2022, adjusted for equity effects stemming from higher interest rates).

The market for alternative risk transfer has also remained relatively stable, with approximately US$100 billion in capital investment. Within this market, there has been a noticeable shift towards catastrophe bonds.

Accurate estimates of inflation’s trajectory are paramount for insurers and reinsurers, Munich Re explained. In the case of 2021 and 2022, inflation rates exceeded expectations by almost double.

While inflation has begun to decline, average consumer price inflation in industrialized nations is anticipated to remain above central banks’ targets of around 2% in the years ahead, even in the baseline scenario.

Consequently, higher inflation rates are a more likely risk scenario than milder price increases, introducing substantial uncertainty.

Simultaneously, various risks are transforming, notably in natural hazards. Severe thunderstorms, including tornadoes and hail in the US, triggered losses totalling US$35 billion in the first half of 2023, with US$25 billion covered by insurance. These loss magnitudes now resemble those anticipated from major hurricanes, marking a shift from the exceptional to the norm, Munich Re said.

Scientific research also indicates climate change is heightening the frequency of severe thunderstorms. Market data reveals an upward trend in losses from such events, including in Europe, and from non-catastrophic perils like wildfires and flash floods in multiple global regions.

Areas of investment

Munich Re board management member Thomas Blunck underscored the necessity to increase investments in ensuring and expanding (re)insurability.

Key investment areas include expanding risk modeling and high-definition models to better reflect escalating natural hazard risks, increasing resources and expertise in innovative and complex coverage for climate-friendly energy technologies, and harnessing data and technology to a greater extent. Munich Re is also investing in generative artificial intelligence (AI) expertise.

“Given the dynamic development of the market environment and how the risk landscape is evolving, we will need to increase our investments to ensure and expand (re)insurability,” Blunck said.

Stefan Golling, responsible for Global Clients and North America on Munich Re’s board of management, also highlighted the fundamental role of risk and underwriting expertise for the company. He outlined four key areas where this expertise is pivotal:

  • Natural catastrophes, where a deep understanding of the evolving risk landscape is crucial for offering extensive underwriting capacity.
  • Social inflation in the US, characterized by rising court-awarded damages, presents a significant challenge for long-tail liability coverage, necessitating effective limit management, proactive loss management, and investments in data and analytics.
  • Political risks, which have surged in recent years, and transparent policy wording, appropriate sublimits, and clearly defined loss events are essential for ensuring insurability.
  • Cyber risks, which are also on the rise; Munich Re reaffirmed its commitment to facilitating a sustainable and profitable cyber insurance market while excluding uninsurable risks.

“Expert and highly disciplined underwriting is the backbone of Munich Re’s identity," Golling said. "We routinely adapt our rates and conditions to the changing environment, exclude systemic risks, and develop solutions for new challenges. This approach ensures that we can maintain – and, wherever possible, even strengthen – our position as a risk carrier while sustaining profitable growth."

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