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AM Best has revised its outlook for the global reinsurance segment to positive from stable, signaling clear sailing ahead for the industry – but not without its challenges.

In 2023, for the third consecutive year, the global reinsurance segment generated positive underwriting results, with several reinsurers reporting combined ratios below 90%. In 2022, these results were heavily offset by unrealized investment losses in fixed income portfolios, which have since been mostly recouped due to higher reinvestment rates. In 2023, many reinsurers produced return on equity (ROE) exceeding 20%.

According to AM Best, recent improvements in underwriting margins followed a period of disappointing results after significant weather-related losses in 2017, including Hurricanes Harvey, Irma, and Maria. Efforts to reprice and tighten terms and conditions, alongside a reduced appetite for aggregate protection, a focus on named perils, and a shift from proportional to excess of loss covers, contributed to these improvements.

Additionally, several companies have reduced their exposure to natural catastrophe perils, especially in high-frequency layers, leading to more stable underwriting profits.

These profits became evident in 2021 with market hardening, confirmed by the dislocation of the renewal season in early 2023. Cedants and reinsurers realigned their roles, with reinsurers focusing on providing balance sheet protection rather than earnings stabilization.

Exceptional ROEs for 2023 a one-off

AM Best anticipates that the exceptional ROEs seen in 2023 are unlikely to be repeated at such high levels, though reinsurers are expected to maintain underwriting discipline. Despite some signs of deceleration or slight rate softening at the most remote layers of protection, pricing remains robust with limited appetite for higher frequency layers. Tightened terms and conditions are crucial for sustaining and stabilizing technical margins.

Unlike previous hard market cycles, the current cycle is not characterized by a shortage of available capital. Recent negative rating actions on reinsurers have been driven by technical underperformance rather than surplus declines. The best performers continue to expand through oversubscribed capital raises and retained earnings but deploy resources prudently.

Major European players maintain active special dividend and share buyback policies. Investors are more likely to allocate new funds to rated balance sheets with scale and a proven track record, or opportunistically to Insurance Linked Securities (ILS) structures where liquidity is critical.

The end of a period of record-low interest rates has changed the economic landscape, increasing competition for resources between the reinsurance segment and other investment alternatives.

This competition is intensified by the past underperformance of the segment and its perceived volatility, particularly given current climate trends and geopolitical instability. Despite de-risking measures on reinsurance portfolios, it will take time for investors to reduce the risk premium applied to reinsurers.

Reversal of investment losses

Unrealized investment losses in fixed income portfolios, resulting from sharp interest rate increases and reducing global reinsurers’ capital and surplus in 2022, were largely reversed by the end of 2023.

Except for that particular year, dedicated capital for the global reinsurance segment has steadily expanded over the last decade. This recovery might have been more pronounced if not for sizeable dividend distributions by the largest groups.

AM Best’s positive outlook considers the challenges the global reinsurance segment still faces. Heightened natural catastrophic activity, increasing relevance of cyber risks, geopolitical uncertainty, and economic and social inflationary pressures remain crucial topics in the ratings assessment. Global reinsurers have generally leveraged their enterprise risk management frameworks to dynamically adjust strategies to a changing market environment.

Global reinsurers can adapt their business mix and risk profiles to evolving market conditions. Well-diversified organizations can use various strategies to enter and exit particular market segments based on performance expectations.

Examples include the shift away from high-frequency layers in property natural catastrophe coverage, increased caution in writing certain US casualty lines, and the repricing and tightening of terms and conditions to reduce uncertainty linked to unforeseen events such as global pandemics or international armed conflicts.

A key challenge for global reinsurers is balancing prudent capital deployment to support adequately priced risks while maintaining relevance in an increasingly uncertain world due to geopolitical factors, climate trends, and societal or technological changes.

Historically, reinsurers have demonstrated their ability to innovate and refine underwriting tools, as seen with natural catastrophe models and the development of ILS instruments. This trend is expected to continue, given the rising importance of new risks in cyber, secondary perils, and certain casualty lines.

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A recent study suggests that natural and climate-related disasters have been decreasing, challenging the narrative presented by several prominent international agencies. This report aligns with the long-standing assertions of the Global Warming Policy Foundation (GWPF), which has disputed claims of increasing climate disasters.

Organizations such as the UN Office for Disaster Risk Reduction (UNDRR), the Food and Agriculture Organization of the United Nations (FAO), the World Meteorological Organization (WMO), and the International Red Cross (IFRC) have reported a rise in climate-related disasters. However, the GWPF has argued that these reports are misleading, suggesting that technological advancements since the 1970s have led to increased disaster reporting rather than an actual rise in disasters.

The new study by Italian scientists Gianluca Alimonti and Luigi Mariani in Environmental Hazards claimed a declining trend in the number of natural and climate-related disasters in the 21st century. Their analysis of disaster reports since 1900 reveals a significant decline in such events up to 2022.

“The assertion that we are facing an increasing trend of natural disasters, as claimed in the three official reports by UNDRR and FAO on the basis of the same EM-DAT dataset […] is not supported by data,” it said in the study.

The authors emphasized that the empirical data contradicts earlier analyses by the UN bodies, which predict an increasing number of natural disasters and impacts due to global warming: “Our analyses strongly refute this assertion as well as extrapolations published by UNDRR based on this claim.”

The scientists expressed concern over the misrepresentation of natural disaster trends, warning that such claims have been widely disseminated by various media and the FAO. They argued that this misrepresentation can lead to inconsistent policies at both national and international levels, potentially wasting resources or diverting them from more pressing issues.

“The new study by Alimonti and Mariani vindicates what we said in a GWPF report three years ago—climate-related disasters are not on the rise, despite global warming. Claims to the contrary have been made for years by several international agencies. Yet, these agencies failed to recognize that the apparent increase in natural disasters since the 1970s simply reflects a major increase in disaster reporting due to new technology,” said Dr. Ralph Alexander, who is an expert critique of erroneous climate disaster claims.

This is what GWPF director Dr. Benny Peiser had to say.

“There is a famous saying that sums up the GWPF’s efforts to set the record straight on disaster trends and climate disasters: ‘First they ignore you, then they laugh at you, then they fight you, then they join you.’”

Global reinsurance broker Gallagher Re has announced the promotion of April Engelman (pictured) from executive vice president and operations director for North America to chief operating officer of its North American region.

Gallagher Re North America CEO Brian Flasinski expressed his excitement for Engelman’s new role.

“We are thrilled to welcome April to the North American leadership team,” he said. “April brings a wealth of knowledge across operations, deep expertise and proven leadership — invaluable assets to support the business as we embark on the next chapter of our growth story. We are also excited to have filled this position from our existing talent.”

Who is April Engelman?

Before being a part of Gallagher Re in 2021, Engelman started her career as an account analyst at Willis Re. After three years, she was promoted to treaty analyst and continued climbing up the ladder first as business process manager before becoming senior vice president, regional operations manager – Midwest.

Following Gallagher Re’s acquisition of Willis Re, Engelman then joined the firm as executive vice president, North America operations director, where she became integral to the smooth transition between the firms.

Engelman expressed her sentiments regarding her new role.

“It’s an honor to continue to serve the North American region in this new role, and I look forward to collaborating with the leadership team. We share a passion for the business and dedication to operational excellence, and I look forward to expanding our partnership as we continue to drive the business forward,” she said.

Engelman will be replacing Mark Hansen in the role as he had been recently promoted to Gallagher Re’s chief operating officer. With her promotion immediately taking effect, Engelman will be reporting to Flasinski and will be based in Minneapolis, Minnesota.

Gallagher Re is a reinsurance broker and advisory firm that operates across the risk and capital business.

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A new report by the Bermuda International Long Term Insurers and Reinsurers (BILTIR) has revealed significant stability and growth within Bermuda’s long-term insurance market. Specifically, 92% of BILTIR members’ rated assets under management are investment-grade, while assets held by these companies exceed their liabilities by $231 billion.

BILTIR based its findings on a study involving 55 life and annuity (re)insurers who are members of the association. One significant finding is that BILTIR members have made total benefit payments of $137 billion over the past five years, highlighting efforts to address the pension protection gap.

Assets held by reporting companies exceed their liabilities by $231 billion, indicating a high level of asset diversification used for reinsurance, direct writing, and growth financing.

The analysis shows that 92% of BILTIR members’ rated assets under management are investment-grade, with 95% of their bonds, debentures, and structured assets also being investment-grade. In addition, 77% of these assets benefit from secured trusts, funds withheld, or MODCO arrangements, reflecting stable investment capital that fuels industry innovation.

“As evidenced by this data, Bermuda’s insurers and reinsurers hold an important role in protecting policyholders. Strong, evolving regulation and stable capital investments create an environment for excellence within the industry,” BILTIR CEO Suzanne Williams-Charles said.

“Addressing the pension protection gap is a global issue, and Bermuda is taking center stage as the location to support the changing industry. This jurisdiction stands as a best practice model for others.”

The world is facing massive challenges, from climate change to political instability. However, emerging industries including climate tech, bio tech and artificial intelligence (AI) could perhaps offer solutions to some of the problems. These startup companies can struggle to find the investment and insurance coverages they need and could be a big opportunity for brokers.

Joseph Ziolkowski (pictured above) is CEO of Bermuda-headquartered Relm Insurance. His firm has 50 employees in locations including Miami, London and Dubai and specialises in coverages for emerging industries.

One of the areas he’s focused on is alternative therapeutics, particularly psychedelic drugs.

Psychedelic drugs: an insurance perspective

Insurance Business asked Ziolkowski why he became interested in psychedelic drugs from an insurance and risk perspective?

“It was really about acknowledging the really important advancements in an emerging area that were going to potentially fundamentally shift the way people approached certain things,” he said.

Ziolkowski said the medical field of alternative therapeutics signals a growing awareness that neurological diseases, including PTSD, eating disorders and substance abuse, are not very responsive to traditional clinical treatments.

“The ability to use psychedelics to actually create material improvements in the way that these disorders and diseases are treated is real,” he said.

Ziolkowski said there is a significant amount of funding moving into this sector.

“You’ve got sophisticated institutional investors that are investing in early stage companies using psilocybin, MDMA, ketamine, DMT, Ayahuasca right – and these are otherwise known as controlled substances or illicit drugs – to make really important and incremental advancements in the treatment of really debilitating diseases,” he said.

Regulatory frameworks for psychedelics around the world

Around the world, the regulatory framework for using these drugs medically, he said, is also moving quickly forward.

“You’ve got Alberta in Canada, which was the first province to legalise or decriminalise certain aspects of psychedelic compounds,” said Ziolkowski. “You’ve got two states in the US that have made headway in the form of legalising or decriminalising.”

He said there are also 25 US state referendums that are making decisions concerning how drugs like psilocybin and MDMA can be used to treat certain types of diseases.

“You’ve got Australia, which was really the first country to make material advancements in the reclassification of MDMA and psilocybin from Schedule 9 [prohibited] to Schedule 8 [controlled drug], allowing clinical use of these drugs for psychiatrists to put these types of psychedelic compounds to work,” said Ziolkowski.

The Relm CEO said many other similar kinds of legislative advancements are being considered by governments around the world.

“Primary benefit”: D&O

“If you look at that momentum, over a relatively short period of time, then you look at the funding that’s coming in from institutional investors,” he said. “Then you look at the, so far, trickle of activity from traditional pharmaceutical companies that are beginning to make investments and acquisitions of companies in early stage clinical trials for certain types of psychedelic compounds – these companies are going to need insurance.”

Ziolkowski said coverages are needed for these startups to bring directors on to boards, enter into contracts and comply with regulations.

“One of the main uses of our capacity is for companies in these early stage clinical investigations for the use of things like MDMA and psilocybin,” he said. “This is really part of their capital raising initiative.”

At this early stage, he said, these firms are trying to attract medical experts and other industry players for their clinical trials and boards.

“If you’re a credible professional being asked to serve on the board of any company, never mind a company that’s doing perceived high risk activities and investigations, you’re likely not going to be excited about exposing all of your personal liability without any directors and officers liability insurance, right?” Ziolkowski said.

He said a “primary benefit” an insurance firm like his can provide is securing “substantive coverage for directors officers liability.”

“This allows them to bring on experts and professionals that help bring, not just credibility and capability to their company, but also satisfy investor concerns,” said Ziolkowski.  “That allows them to raise more capital and extend their investigation into these clinical trials.”

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CNA Financial Corporation executive vice president and global head of underwriting Doug Worman (pictured) will step into the roles of president and chief executive at the start of next year.

The appointment will see current chairman and CEO Dino E. Robusto transition to the executive chairman position. In his new capacity beginning 2025, Robusto will lead the CNA board of directors while acting as a strategic advisor to Worman, supporting the company’s objectives.

Expressing his confidence in Worman’s capabilities, Robusto stated: “Doug is an exceptional underwriting executive and has strengthened and solidified CNA’s underwriting culture and profitability.

Worman, reflecting on his upcoming remit, commented: “I am honoured to take on the CEO role, building upon Dino’s success in optimising CNA’s strategic underwriting direction. My goal is to continue elevating CNA as a preeminent P&C (property and casualty) insurer.”

Since joining CNA in March 2017 as executive vice president and chief underwriting officer, Worman has played a crucial role in developing CNA’s product organisations and business units. He spearheaded the company’s global underwriting committee, which led to his current position as global head of underwriting in 2022. CNA’s operations span the US, Canada, and Europe.

Before joining the insurance group, Worman held several key positions, including CEO of Endurance US Insurance, executive vice president of Alterra Capital Holdings, and chief executive of Alterra US Insurance. His career began at AIG, where he progressed through various underwriting and management posts, ultimately becoming president and CEO of AIG Excess Casualty Group.

Meanwhile James S. Tisch, a CNA board member and the CEO of the firm’s largest shareholder (Loews Corporation), added: “We are extremely thankful to Dino who, over the past eight years, has worked tirelessly to lead the company to record levels of profitability and top quartile underwriting performance.  We are delighted that he will continue to advise CNA as executive chairman.

“As we look to the future, we know that Doug is a dynamic and proven leader with a clear vision for the company.”

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Earlier this year, the re/insurance market welcomed a first-of-its-kind innovation in the formation of CyberShock, a cyber catastrophe consortium. Created by Hiscox Re & ILS and Ariel Re, the new entity looks to provide up to $50 million in per-program capacity to support cyber insurers globally, and foster a healthier and more sustainable cyber insurance ecosystem.

Discussing the consortium’s launch, Conor Husbands (pictured), senior underwriter, cyber, at Hiscox Re & ILS, noted that it found its roots in addressing a long-standing challenge facing the cyber marketplace.

“On the one hand, there’s increasing demand from clients, from cedents, to transition their reinsurance purchasing from being on an aggregate basis to being on an occurrence basis,” he said. “On the other hand, there’s really no suitable products available to cater to that. Our belief, and Ariel’s belief, is that the existing product suite and existing attempts at addressing the demand are not yet fit for purpose. We’ve wanted to address that for some time.”

Husbands highlighted how Hiscox and Ariel share a strong cyber pedigree, with the former having written non-proportional cyber products of all kinds for a decade now, as one of the first markets to launch its cyber product suite in 2014. In addition, he said, Hiscox developed the market’s first cyber ILW (Industry Loss Warranty) product and first parametric transaction.

Meanwhile, he said, from early conversations with Ariel, it became apparent that the business was already at a very advanced stage of developing the contract language at the heart of the CyberShock wording so the alignment of ambition between the firms was clear from the offset. Ariel had already started putting pen to paper in terms of developing the product and, like Hiscox, they proved willing to back the product with significant capacity.

“We think that’s going to be crucial in getting traction with clients,” he said. “Our combined capacity offering for this is $50 million per programme which, in the context of cyber insurance, is a really meaningful amount.”

The final piece of the puzzle for Husbands and his team was the calibre of the Ariel team – who bring an extensive background in cybersecurity and a strong grasp of the underlying risk of this peril.

Who does CyberShock target?

On the rollout of CyberShock, Husbands highlighted that it is designed for global writers of affirmative cyber. It offers up to five bespoke heads of coverage, though clients can tailor that to the needs of their portfolio, he said, and it’s designed to protect clients against a wide range of cyber-specific perils.

 “By designing it like that, we hope that we can absorb the main catastrophic risks, which could impact their portfolio,” he said. “So that includes software service or hardware supply chain disruption, malware propagation, the widespread exploitation of a zero-day vulnerability and cloud outages, among a number of other things. We’re really trying to identify the core cyber risks that clients face, and to provide a product which enables them to transfer them.”

For Hiscox and Ariel, the strongest selling point of the product – and a core reason behind its creation – is the certainty of coverage it can offer the market. For some time in the excess of loss cyber marketplace, Hiscox has seen a lot of attempts to shoehorn casualty style language into a cyber product, he said, which it feels introduces very significant ambiguities into the functioning of the product. That, in turn, risks leaving it quite open-ended as to which perils are and are not covered, and also how losses get aggregated into the treaty.

“It’s really important to us that clients, as well as reinsurers, aren’t faced with the threat of a costly dispute over coverage after a loss,” he said. “They have to know exactly when the protection we offer will respond or won’t respond. That’s what we’re trying to achieve with CyberShock. There’s a big difference in our minds between loose language and broad coverage. And we’re trying to avoid the former and provide the latter.”

While that certainty of coverage element is the main selling point of the product, not least because of the question it raises as to how some other occurrence products in the marketplace would respond to a major event, Husbands noted that there is a range of benefits from this consortium for multiple stakeholders.

For example, he said, the excess points the product is capable of supporting are much lower than in traditional aggregate products – which often see retentions significantly greater than 100% of gross income. By contrast, CyberShock ensures that clients could, in principle, recover from the product without being in a net loss-making position because the consortium is willing to entertain somewhat lower retentions – an important selling point for clients concerned about retentions.

The hope is that CyberShock will help grow the market, Husbands said, by attracting more buyers and enabling more clients to transfer some of the risks which could be borne by the reinsurance marketplace.

The 2024 Atlantic hurricane season is projected to be one of the most active on record, according to forecasts from MS Amlin and Acrisure Re.

MS Amlin, a specialist Lloyd’s of London insurer, and Acrisure Re, the reinsurance division of global fintech leader Acrisure, have both released predictions highlighting a significant increase in storm activity.

MS Amlin’s forecast, which aggregates over 20 separate forecasts, predicts a “substantially above average” number of storms between June and November. The consensus suggests an average of 23 named storms, 11 hurricanes, and five major hurricanes.

Accumulated Cyclone Energy (ACE), a measure of overall hurricane activity, is forecast to reach 204, significantly above the long-term average of 123. The heightened activity is attributed to the development of La Niña conditions in the Pacific and unusually warm sea surface temperatures in the North Atlantic and the Gulf of Mexico.

Dr Ed Pope, a geoscientist in MS Amlin’s exposure management team, noted that predictions point to a potentially active hurricane season in 2024, with some agencies forecasting record levels of activity.

“Importantly, there has been general consensus in those forecasts for a number of months now about potential activity, despite the uncertainties associated with making forecasts early in the year. Even if we hit the low end of these forecasts we are likely to see an above-average season,” Pope said.

Simon Morgan, head of property at MS Amlin, also noted that hurricane-related economic losses have soared by $22 billion per decade since 1990 due to population growth and increasing coastal development.

“The insurance industry can help people and businesses to absorb climate blows, but only if pricing adequately reflects the escalating risks of stronger, more destructive hurricanes in a warming world. Investing in sophisticated catastrophe modelling and research will be increasingly important if the industry is to properly understand and prudently price risks,” Morgan said.

Beyond 2024, the firm noted that climate change is worsening hurricane risk in the long term, with hurricanes likely to increase in intensity, produce heavier rainfall, and have storm surges penetrating further inland. Pope added that the frequency of the strongest storms, Category 4 and above, is expected to increase, leading to more cumulative losses for insurers and a need for communities to focus on climate adaptation measures.

The 2023 hurricane season saw 20 named storms, seven hurricanes, and three major hurricanes.

Acrisure Re forecast for 2024 hurricane season

Acrisure Re’s forecast, meanwhile, also indicates a “very active” hurricane season. The company’s annual Pre-Season Hurricane Outlook attributes the increased activity to a rise in sea surface temperatures, a weaker La Niña weather phase, and conditions similar to past active seasons.

Acrisure Re’s analytics team examined variables such as forecasted Atlantic sea surface temperatures, the El Niño Southern Oscillation (ENSO), and the Quasi-Biennial Oscillation (QBO) to create a qualitative overview of the likely conditions.

Simon Hedley, CEO of Acrisure Re, commented on the greater certainty of an active 2024 hurricane season compared to the previous year.

“Our expert analytics and modelling teams are dedicated to staying abreast of developments, ensuring our brokers are fully equipped to offer the best advice to our clients,” Hedley said.

Ming Li, partner and global head of catastrophe modelling at Acrisure Re, also noted that the synchronizing forces in the Atlantic basin, including above-average sea surface temperatures and the predicted development of La Niña conditions, are likely to spur higher activity. However, the exact impact of this increased activity remains to be seen.

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Gallagher Re has announced that Brian Flasinski (pictured) will assume the role of chief executive officer (CEO) for the North American region on June 1, 2024, succeeding Jim Bradshaw. The transition follows the company’s earlier announcement in March, which also detailed Bradshaw’s move to the position of chairman, Gallagher Re North America, effective the same date.

Bradshaw, who became CEO of Gallagher Re North America in 2021 following the acquisition of Willis Re, will take over from Tom Wafer, who is set to retire on May 31, 2024. In a statement, it was noted that Bradshaw has had a distinguished career in the re/insurance industry, with over 40 years of experience. His tenure at Willis Re began in 2005, eventually leading to his promotion to CEO of its North American business in 2010.

Who is Brian Flasinski?

Flasinski joined Gallagher Re in 2015, having previously served as executive vice president and North American sales leader. His prior experience includes a nine-year stint as senior vice president at Guy Carpenter. In a news release, Flasinski’s leadership in sales was described as pivotal in energizing Gallagher Re’s new sales initiatives and delivering substantial value to clients.

Gallagher Re CEO Tom Wakefield expressed confidence in the leadership changes, highlighting the firm’s ongoing success and client-focused approach.

“Gallagher Re North America is a story of continuing success built on an unwavering focus on our clients. I am confident we will quickly build upon our accomplishments and continue to accelerate our growth,” Wakefield said.

Wakefield also acknowledged Bradshaw’s significant contributions during his tenure, particularly in navigating the Willis Re acquisition and driving substantial growth.

“Jim’s leadership helped us navigate through the Willis Re acquisition and achieve remarkable growth during his tenure. I am grateful for his continued support, guidance, and counsel during the transition and beyond,” he added.

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