13th September 2023
"Uncertainties caused by inflation, potential impacts from geopolitical risks, deglobalisation and dynamic risks such as climate change and cyber risks are some examples as to why the market environment remains complex. Particularly in difficult times such as these, we are a financially strong partner who our clients can always count on to provide a high level of risk expertise and solutions that add value. With the right rates and conditions, we’re ready to further increase our capacity" comments Thomas Blunck, Member of the Board of Management, Munich Re.
The market environment for reinsurers remains promising but faces heightened uncertainty. In the period 2023–2025, the global reinsurance market is expected to see a slight uptick in real average annual growth, somewhat below 2020–2022 levels. Future growth is anticipated to be highest in Asia-Pacific and Latin America.
According to data from AM Best and Guy Carpenter, reinsurance capital, after declining last year, is predicted to rise again to $461bn in 2023(2022: $ 434bn, adjusted for equity effects from higher interest rates). Reinsurance capital is an indicator for available reinsurance capacity. The market for alternative risk transfer has remained roughly unchanged with the volume of capital invested totalling around $100bn. Within this market, there has been a further clear shift towards cat bonds.
It remains particularly important for insurers and reinsurers to be accurate in their estimates of how inflation will develop. In the case of 2021 and 2022, inflation was almost twice as high as expected. Inflation has now started to fall again. However, average consumer price inflation in industrialised countries is likely to still be above central banks’ targets of around 2% in the coming years, even in the baseline scenario, and thus well above the inflation rates seen in previous years. The uncertainty involved is considerable–appreciably higher inflation rates are a much more likely risk scenario than lower, less pronounced price increases.
At the same time, many risks are changing, a case in point being natural hazards. Severe thunderstorms with tornadoes and hail in the US caused losses amounting to $35bn in the first half of 2023, of which $25bn were insured. These orders of magnitude are similar to those expected from a major hurricane and have practically become the norm rather than the exception. A large body of scientific research indicates that climate change is increasing the frequency of severe thunderstorms. Market loss data shows an upward trend in losses from such events, including in Europe, and from other non-peak perils such as wildfires and flash floods in many regions around the world.
“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.” explained Blunck.
Munich Re Trends(525 articles)
