13th September 2023
London Market-Editor's highlight extracts from Insurance Newslink articles in the last three months:
-At the IDF Summit 2023, the UN Office for Disaster Risk ReductionUNDRR), the Insurance Development Forum(IDF), the University of Oxford, and the GEM Foundation signed a new agreement to advance the Global Resilience Index Initiative(GRII) and establish a Global Resilience Hub to help countries, financial institutions and investors, map and quantify their current and future climate and disaster risks and demonstrate the benefits of investing in resilience-the collaboration will prevent leaders from ‘flying blind’ on physical climate risk and focus vital investments to areas of greatest need.
-Aon, Lloyd’s and VIG announced a new collaboration to provide enhanced (re)insurance capacity to bolster Ukraine’s economic resilience and support the country’s recovery and reconstruction. As part of the UK-Ukraine Private Finance Partnership, Lloyd’s and Aon committed to deliver fast-track access to supplementary foreign (re)insurance capacity to support both international and domestic companies operating in Ukraine with manufacturing and construction risk exposure, excluding war cover. Working together like this will harness the expertise and capabilities of Ukraine’s insurance market to strengthen and grow domestic (re)insurance availability, providing an essential financial mechanism to support rebuild and reconstruction efforts. As a first step in delivering this commitment, Aon and Lloyd’s have joined forces with one of the largest insurers operating in Ukraine, Vienna Insurance Group(VIG), to provide both treaty and facultative (re)insurance that will allow increased capacity for their local and international clients requiring cover for manufacturing and construction activities.
-The London Market is starting to see concrete returns from investment in digital transformation-WTW analysis. 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-Key findings:-a “Racing Ahead” group, making up approximately 30% of respondents, delivered an aggregated combined operating ratio(COR) of 89 in 2022.
This compares to a “Mobilising” group, making up another 30% of the subset, that delivered an aggregated COR of 93 last year. Finally a “Getting Ready” group, that made up the remaining 40%, delivered an aggregated COR of 95 in 2022.
-The International Association of Insurance Supervisors (IAIS) launched the fourth and final public consultation on the Insurance Capital Standard(ICS) before its planned adoption in December 2024-"After ten years of development, three consultations, six field-testing exercises and three years of confidential reporting, I am pleased that the Executive Committee of the IAIS has agreed on the candidate ICS as a prescribed capital requirement(PCR) for a final public consultation,” remarked Vicky Saporta, executive Committee chair. “Once adopted at the IAIS Annual General Meeting at the end of 2024, the ICS will provide a common language for cross-border supervisory discussions on insurance group solvency in a world where we face many common and interconnected global risks.”
-The IAIS 2023 Global Monitoring Exercise GME) builds on a strong data set collected from approximately 60 of the largest international insurance groups and aggregate sector-wide data from supervisors across the globe, covering over 90% of global written premiums-interim results show slight declines in solvency, profitability and liquidity positions at year-end 2022 compared to year-end 2021, mainly driven by lower asset valuations. Also, aggregate systemic risk scores declined at year-end 2022. Aanalysis found limited direct interconnectedness of the insurance sector with banks-however, potential second-round effects and lessons learnt from recent bank failures, including the speed with which certain crisis events unfolded, remain relevant.
-Lloyd’s announced the winner of its first Lloyd’s Europe Innovation Competition. REOR20 took the prize for its entry on addressing European protection gaps with a breakthrough Artificial Intelligence(AI) system for flood risk understanding and mitigation.
-Global commercial insurance prices increased 3% in the second quarter of 2023(down from a 4% increase in Q1), according to the Global Insurance Market Index released by Marsh. The second quarter marks the 23rd consecutive quarter of pricing increases-pricing was relatively consistent across all regions in Q2. This was driven largely by rate decreases for financial and professional lines and continued moderation in the cyber insurance market, which was offset by property insurance increases, the largest of any major product line this quarter. In the UK, composite pricing increased by 1%(down from a 3% increase in Q1 of 2023), in Pacific by 2%(down from 7% in Q1), and was flat in Asia(down from 1% in Q1). The remaining regions recorded identical increases on the previous quarter; in Latin America and the Caribbean pricing increased by 8%(8% in Q1), in Continental Europe by 5%(5% in Q1), and in the US by 4%(4% Q1).
-S&P Global Ratings published a roundup of its insurance industry and country risk assessments(IICRAs) for 97 insurance sectors covering 48 countries and four global sectors, in the report, "Insurance Industry And Country Risk Assessment Update: July 2023." Since it's last publication ("Insurance Industry And Country Risk Assessment Update: April 2023,"), the rating agency says they have:- "Revised our country risk assessment on the Italy's life and P/C sectors to intermediate from moderately high. This primarily reflects our view that the country's non-sovereign entities are now exposed to lower financial system risks. The IICRA scores for Italy's Life and P/C sectors remain unchanged, however-Revised our country risk assessment on the Uruguay's life sector to intermediate from moderately high. This follows our publication "Country Risk Assessments Update: April 2023," published 28th April 2023. However, the overall IICRA remains moderately high risk. Despite the life insurance sector's historically satisfactory profitability, some existing characteristics could bring additional volatility during stress scenarios. Indeed, the Uruguay's life sector has a very small absolute size, very low insurance penetration(0.35% of GDP), and high exposure to foreign exchange movements, reflecting companies' long position in US. dollars. This compares unfavourably to its regional peers. In this report, we also publish our assessment of the country and industry risks to which insurers are exposed-insured losses from wildfires have doubled over the past 30 years and insurers face highest natural-catastrophe losses since 2011.
-A new insurance sector report from Bloomberg Intelligence estimates that insured losses from natural catastrophes in H1 2023 point to 2023 being the third straight year of weather-event claims topping $100bn, with much of these coming from secondary perils such as floods, hail and wildfires. All of the latter are becoming more frequent as global temperatures rise, noted BI. Charles Graham, senior insurance analyst at Bloomberg Intelligence, commented: “Munich Re puts total global insured costs of natural-catastrophe events in H1 at $43bn and SwissRe at $50bn, so it seems certain that 2023 claims for weather-related incidents will probably exceed $100bn for the third year in a row. The earthquake across Turkey and Syria was the most devastating episode-involving the loss of an estimated 58,000 lives-yet only about $5bn of the projected $40bn cost was insured. More than two-thirds of H1 insured losses from natural catastrophes were as a result of severe thunderstorms in the US which brought floods, hail and tornadoes. Climate change facilitates the formation of convective storms, since higher temperatures result in greater water evaporation and increased humidity at ground level. Record temperatures have also sparked numerous wildfires.”
-The global cyber insurance market has recently returned to profitability following two years of rate increases and tightening terms and conditions. Annual premiums reached about $12bn at year-end 2022, and are likely to increase by 25%-30% per year to reach about $23bn by 2025-in a report "Global Cyber Insurance: Reinsurance Remains Key To Growth,"-S&P Global Ratings says that its survey of global multiline insurers(GMIs) and global reinsurers suggests growth in cyber insurance will depend heavily on reinsurance to provide capital and manage accumulation risk."
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