30th August 2023
Research, Publications, and Surveys-Editor's highlight extracts from Insurance Newslink articles in the last three months:
-Allianz GCS Safety & Shipping Review 2023:
38 large ships lost worldwide last year–down by more than a third and the lowest total in the report’s history. South China Sea region sees most total losses. British Isles sees most shipping incidents.
Fire is the second top cause of loss over the past year with 8 vessels lost and more than 200 incidents reported–the highest for a decade. Transport of electric vehicles and battery-powered goods bring new fire risks. Larger vessels and mis-declaration of cargo amplify consequences.
Oil-related sanctions: growth of shadow tanker fleet posing safety and environmental concerns.
More expensive claims due to inflation. Cost pressures could impact shipping sector’s decarbonisation and safety initiatives.
-Gallagher Re analysed the evolving risk factors that contribute to wildfire losses, and the resulting distressed insurance and reinsurance market dynamics for 2023. Wildfires continue to pose a significant threat to an already fragile insurance and reinsurance market given recent profitability challenges. An extended wildfire season has become a daunting reality for many regions across the nation. To combat these challenges, Gallagher Re offers its clients an array of analytical tools and insights to tackle the intricacies of pricing, underwriting and portfolio management in the midst of a rapidly transforming environment.
-Participants of the CII’s Chartered Insurance Insititute New Generation programme published a report exploring the potential threat of the hybrid working model on the London Market. The New Generation programme is an annual initiative for up-and-coming professionals to design and work collaboratively on a project intended to improve the insurance sector. Data gathered from a diverse group of respondents, working in a range of industry sectors, has been used to provide insights and recommendations on how the London Market can adapt, in order to maintain its position as global leader in the insurance industry. ‘The new normal’ sees a drastic shift in the amount of time spent working in traditional office spaces. Pre-pandemic, 90% of survey respondents attended the office 4 times a week or more. In stark contrast, 86% are now attending the office 3 times a week or less. Less than 5% now attend the office 5 days a week. The survey asked respondents to rate the impact of hybrid working on different areas of their working life, using a scale ranging from ‘very negative’ to ‘very positive’.
-The London Market is beginning to demonstrate tangible results on the back of technological innovations in order to position firms for long-term profitable growth, according to new analysis by WTW. WTW conducted analysis of 49 syndicates that make up approximately 85% of the Lloyd’s market, asking firms to reveal where they are on their digital transformation journey in how they make decisions, underwrite, trade and configure their operating models. The research, which classifies the syndicates into three separate groups, shows firms that have already started to invest in technological changes achieved a 6 point outperformance advantage over those that have been slower to innovate during the market’s ongoing digital transition. Specific examples of innovation include successfully leveraging data assets, decision support ecosystems and digital trading solutions.
-Emerging Asia is expected to be the main contributor to global economic growth in the coming years, according to Swiss Re Institute's latest sigma report. With the reopening of China's economy this year leading to a recovery in demand, Swiss Re forecasts emerging Asia to grow by 5.4% in 2023/24. Inflation remains the top global macroeconomic concern. "With inflation pressures still persistent, hard market conditions in non life business are set to continue as insurers offset elevated claims costs with higher premium prices. Once disinflation takes hold with prices decreasing, less expensive claims and greater returns from interest rate sensitive investments should further support industry profitability," said Jérôme Haegeli, Swiss Re's Group chief Economist. Swiss Re's global economic growth forecasts are below consensus at 2.3% this year and 2.3% in 2024. The cumulative effect of over 18 months of rising interest rates, deteriorating credit conditions and further central balance sheet reductions will continue to dampen growth prospects. The risks to growth remain skewed to the downside.
-Sustained heat, floods and heavy rainfall could also see insurers hit with further increased costs, with subsidence related insurance costs swelling to over £1.9bn by 2030 according to analysis by PwC. The fresh analysis shows that subsidence related insurance will see significant impact if levels of sustained heat continue. The findings reflect the impact record temperatures can have on insurance claims, with a global increase in unusually hot summers. In addition, the extreme winter weather from 2019 to 2020 saw economic losses of £333m due to flooding and this figure could soar to £500m in 2050 assuming that flood-management approaches and expenditure remain unchanged.
-Claims inflation is likely to remain a pronounced feature for the rest of 2023, according to Bloomberg Intelligence’s Europe P&C Insurance 2023 Outlook, with BI believing insurers won't be able to increase rates enough to fully offset rising expenses. This situation has been building since the steady premium-volume recovery in 2021, when economies emerged from lockdowns. Aside from cyber insurance, there are few obvious areas where companies can boost volume, added BI. The rollout of IFRS 17 accounting that starts in earnest with Q2 results has the potential to sharpen investor focus on book value and the return on it. The uncertainty caused by the new accounting rules isn't likely to help sentiment this year.
-As the World Meteorological Organization and others declare July 2023 the hottest month on record, Moody’s RMS offered insights on the range of integrated risks and impacts related to the current high temperatures, this year’s El Niño effect, and more generally to climate-Claire Souch, vp of Climate Risk, Moody’s RMS, comments: "Whilst this year’s record land and ocean temperatures are a result of a mixture of factors, including anthropogenic climate change, we can expect to see these sort of temperatures more often in the future. Although typically described as a “chronic risk,” heat stress is increasingly exhibiting extremes, such as heatwaves, as well as compounding and interrelated effects on drought, water stress, and wildfires. A likely consequence of additional warming brought by El Niño could include drought in Australia, southern Africa, Indonesia, and India. Record-high temperatures are also being experienced across the Atlantic Ocean; such temperatures are more typical of late summer, meaning more records are likely to be broken. The impacts of warmer oceans include the potential for stronger hurricanes, although other effects of El Niño, such as increased wind-shear, may counteract this. Warmer oceans and increased evaporation also mean heavier precipitation and increased likelihood of flooding in coastal areas. The impacts of heat stress on many businesses in the US and Europe are expected to more than double by 2050 under a moderate climate change scenario, and more than quadruple in parts of Asia such as Singapore, Sri Lanka, and Bangladesh. Under an extreme climate change scenario, these impacts could be as much as double the moderate scenario across all regions."
-As incumbent (re)insurers stepped-up their investment activity, new funding for the global InsurTech sector slipped to $916.71m during the second quarter of 2023, down 34% from $1.39bn in Q1 2023, pushing the quarterly total below 1bn for the first time in three years. However,average deal size fell by a much smaller degree–16.1%–to $12.39m in Q2, across only 97 investments, according to the latest Global InsurTech Report from Gallagher Re.
-Swiss Re Institute reported that severe thurderstorms accounted for 70% of all natural catastrophe losses in the first half of 2023. insured losses-global insured losses from natural catastrophes at $50bn (H1 2022: 48), second highest since 2011-US thunderstorms main driver of global insured losses from natural catastrophes, well above ten-year averag-February earthquake in Turkey and Syria single costliest disaster both in terms of economic and insured losses. A series of widespread thunderstorms (severe convective storms) hit the US and account for 68% of global insured natural catastrophe losses, highlighting the increasing loss impacts of secondary perils.
-Higher interest rates haven't been all good news for reinsurers, S&P Global Ratings said in a report. While sharp rate rises in the past 18 months will benefit reinsurers' investment income in 2023 and beyond, they also led to a material decline in the fair valuation of fixed income investments held on their balance sheets and, in turn, their shareholders' equity positions. For the top 20 reinsurers globally, shareholders' equity dropped by 20% at year-end 2022 compared with a year earlier, reflecting in part the imbalanced accounting treatment between the valuation of assets and liabilities.
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