Reinsurance companies are doing a number of things to manage their exposures in an inflationary environment of late – index clauses and pegging the sums insured to current values were just two tactics discussed at a recent outlook presentation hosted by Swiss Re.
Other practices or tendencies those working with reinsurance companies might recognize include the requirement for more data sharing and reporting. Reinsurers today are also more likely to be augmenting that data with third-party sources. The third trend occurring in reinsurance, says Anne Lohbeck, specialty chief underwriting officer with Swiss Re, is the level of forecasting and a new variety in the techniques used to produce more useful forward-looking views.
The comments were part of an outlook presentation made by the company, Global Executive Dialogue: sigma/6 2023 Economic and Insurance Outlook 2024-2025.
“The underlying exposure landscape is changing. We need to keep track of it and on top of it,” says Lohbeck. “In addition to this in a macro environment that is inherently more volatile, and more risk prone. I think it poses a really big challenge to us as insurance and reinsurance professionals in that we need to reflect these changing exposures also in our policy language and our contracts and wordings to make sure that insurance can deliver ultimately on the promises that we give.”
Economic and social inflation were also both discussed by the group gathered for the presentation. In specialty lines, meanwhile, there is also environmental inflation to contend with. “Higher costs associated with higher environmental standards, that is also something that has been important in the specialty lines and is continuing to cause pressure in claims.”
They add that higher interest rates are good for life and health insurers and reinsurers, helping profitability, particularly when it comes to in-force books of business. “I think we have to watch the potential (for) increased lateral risk. This is created when policyholders are cancelling their policies to write new ones where they have more attractive interest rates. There is this risk of increased lapses for the in-force books of the life insurers. There is also the cost of capital that may stay high or at a higher level than if the rates would be lower,” says Julien Descombes, chief underwriting officer life and health reinsurance.
Swiss Re group chief economist, Jérôme Jean Hägeli later in the presentation adds: “We actually still do not expect this year or next year, the primary insurance market industry to be able to meet its cost of capital.”