EM Insurance Brokers EMIB Jean Luc dArgent Executive Head Mauritius

Worldwide right now, a threatening cocktail of natural disaster, geopolitical upheaval, and the rising cost of money is conspiring to fundamentally shift the reinsurance goal posts ahead of the looming January 1st renewal deadline. And as the insurance industry generally grapples with this perfect storm, Africa certainly cannot expect to watch from the side-lines, unscathed.

With premium hikes looking inevitable, buyers of broad and specialist risk cover will need to lean hard on the talents of their broker advisers to pick the safest path through the challenges. Click this link, for a concise but comprehensive situation analysis, of what lies ahead…

HOWDEN WARNS OF ‘TIPPING POINT’ FOR REINSURANCE
MARKET AHEAD OF JANUARY 1ST, 2023.
8 September 2022

Climate, conflict, and capital are “coalescing to create a tipping point for the reinsurance market” ahead of the key, January 1st, 2023, reinsurance renewals, according to re-insurance broker Howden.

While reinsurers initially stood firm in the face of headwinds, persistent cat loss frequency, coupled with “major macroeconomic and geopolitical realignments” in 2022 have ultimately exacerbated the challenges and altered assumptions around yield, capital, and loss costs.

According to the broker, risks are escalating and as the world endures one crisis after another, there’s evidence of a fundamental shift in supply and demand dynamics within the reinsurance sector.

“After years of excess capacity, loss uncertainty and the changing world order have combined to create some of the most challenging market conditions in two decades. Pricing and risk appetites are responding accordingly. No two cycles are the same, however, and new capacity could very soon be enticed into the market, given current rating levels and the higher potential returns on offer,” said Bradley Maltese, Chief Executive Officer (CEO), Howden RE.

Capital providers’ price expectations have continued to shift in line with structural changes to the loss environment, meaning that 2023’s reinsurance renewal cycle is likely to see further pricing pressures. Loss experience from here will be crucial: whilst pressure will increase if the wind blows this year, it will be more muted off the back of a loss-free second half.

Examining the three C’s in more detail, Howden says that in regards to climate, the P&C industry is in the eye of a price, risk, and inflation storm. Although, as capital inflows have come down as secondary peril losses continue to rise, reinsurers’ resolve to meet rising cost of capital has strengthened, says the broker.

On conflict, the report finds that while Ukraine war claims are likely manageable overall for the insurance and reinsurance sector, some will feel the pain a lot more than others owing to the concentration of losses amongst premium-light lines of business.

The unexpected war losses came soon after the unexpected pandemic losses, which while still evident are fading for most. But the reality is that companies’ exposure to loss aggregation in such a volatile risk landscape has contributed to the transitioning reinsurance cycle witnessed this year.

“Both events have revealed how perils once regarded as ‘distinct’, e.g., business interruption, supply chain failures and price shocks, can in fact be connected and strike simultaneously,” says Howden.

Turning to capital, and Howden is the latest to predict a decline in dedicated reinsurance capital levels for 2022. In fact, the broker says that market conditions have resulted in a $46 billion decline in capital at H1 2022, and a projected year-end reduction for the first time since the financial crisis.

“Unlocking capital to find solutions for risks that may soon outgrow the sector’s capital base will be crucial to maintaining relevance and offering clients coverage that meets their rapidly changing needs. Clients demand better data, world class analytics, scale and a unique blend of capital markets and risk transfer.”

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