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In June, AM Best revised its outlook for the global reinsurance sector from Stable to Positive, marking the first such shift for the segment. The change is attributed to a renewed focus on technical profitability in recent years.

According to AM Best, unlike previous cycles, a combination of climate trends, a complex risk environment, and sustained higher interest rates suggests that the improved underwriting margins may persist for a few more years, provided underwriting discipline continues.

The segment’s strong technical profits are largely due to comprehensive de-risking measures, better alignment between reinsurers and primary carriers, and improved pricing. AM Best notes that a move away from high-frequency layers, tighter contract wording, and a more defined scope of cover have refocused reinsurers on providing capital protection rather than stabilizing earnings.

These changes followed several years of underwhelming underwriting performance, during which reinsurers struggled to meet their cost of capital, even amid historically low interest rates until about three years ago.

Hard pricing conditions are expected to endure longer than in past cycles due to several factors. Persistent high claims activity, as highlighted by AM Best, is driven by the accumulation of medium-sized losses and secondary perils, rather than by major catastrophic events.

The segment remains well-capitalized, and although companies have taken steps to manage their capital more efficiently, their solvency positions have not faced significant pressure. This contrasts with a temporary reduction in capital and surplus caused by unrealized investment losses on fixed-income instruments following the rise in interest rates in late 2022

 According to AM Best, when global reinsurers have faced negative rating pressures, the primary cause has been technical underperformance rather than balance sheet strength.

The current hard market cycle has not been marked by capital depletion. AM Best points out that the market disruption during early 2023 renewals was driven by a sharp withdrawal of capacity.

Companies restricted the deployment of existing capital while maintaining comfortable buffers on their balance sheets. This environment has favored well-established, strongly capitalized players, who have been able to benefit from the hard pricing environment without significant interest in funding new start-ups.

Positive technical results for reinsurance

AM Best noted that its decision to assign a positive outlook to the global reinsurance segment is largely based on the positive technical results seen for three consecutive years, with expectations for sustainability over the next few years.

Following major losses in 2017, the combined ratio for the segment exceeded 110. Repricing, de-risking, and diversifying strategies took time to stabilize, but by 2021, the segment began generating positive profit margins, although still relying on favorable reserve development.

The much-improved underwriting performance in 2022 was offset by unrealized investment losses due to rising interest rates, leading to return on equity (ROE) figures near zero, as noted by AM Best.

For 2023, the average combined ratios for reinsurance subsegments in Europe, the US & Bermuda, and Lloyd’s were all below 90. The adoption of IFRS 17 by most non-US and Bermuda-domiciled groups in 2024 has introduced new challenges for performance benchmarking across the globe.

Despite the benefit of discounting claims reserves under IFRS 17, European reinsurers reported a combined ratio nearly two points higher than their US and Bermuda counterparts, at 87.0 compared to 85.1. AM Best reports that the Lloyd’s market, with a larger share of highly profitable primary specialty business, achieved even better results, with a combined ratio of 84.0.

Across the global reinsurance segment, results were still supported by favorable reserve releases, despite material reserve strengthening in US casualty business written between 2016 and 2019.

Bottom-line results have improved significantly, with several companies reporting ROEs exceeding 20%. Bermuda-domiciled carriers benefited from a one-off deferred tax asset following the implementation of the Bermuda Corporate Income Tax Act of 2023.

European players generally have lower ROEs than their US and Bermuda counterparts, but this could be due to changes in accounting standards, non-recurrent effects, or the more stable and diversified profile of the Big Four, whose results have historically been less volatile.

AM Best attributes the strong results to improved technical returns, combined with higher reinvestment rates.

AM Best believes that the corrective measures taken in recent years, along with current market and economic conditions, will support sustainable profit margins in the medium term. Higher return expectations from investors, combined with the lack of new market disruptors, should maintain ongoing hard market conditions.

Outlook for 2024 remains strong

Despite above-average catastrophe loss activity during the second quarter of 2024 and a few large losses, such as the collapse of the Baltimore Bridge in March, results remain strong and on track for another profitable year, according to AM Best.

The pace of hardening slowed during mid-year renewals, but Guy Carpenter’s Global Property Cat Rate-On-Line Index has already surpassed the hard levels seen in 2006, following hurricanes Katrina, Rita, and Wilma.

While the current Atlantic hurricane season is being monitored, severe convective storms – the most common small to medium-sized peril – are less seasonal and their frequency continues to rise.

Outside the natural catastrophe space, AM Best has raised concerns about the performance of legacy US casualty and some life insurance books, particularly after reserve strengthening actions. The industry is watching closely to see how widespread these issues might be and how effectively affected carriers are addressing them.

AM Best believes that the global reinsurance segment is more resilient than in previous cycles, thanks to positive underwriting margins, higher reinvestment rates, and diversification. While the potential adverse development of historical liability books could impact performance metrics, it is unlikely to materially affect risk-based capitalization in a segment characterized by strong Best’s Capital Adequacy Ratio (BCAR) scores or earnings.

Concerns about social inflation in US liability have led to stricter underwriting, client selection, and price adjustments for new business.

The stellar results recorded in 2023 are unlikely to be repeated, and most companies’ targets for 2024, while optimistic, are more modest. However, AM Best notes that performance for the first half of 2024 is comparable on an annualized basis, providing a comfortable margin for uncertainty.

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Six months on from sharing his views on the state of the reinsurance market – and one month out from RVS in Monte Carlo – MD of QBE Reinsurance Chris Killourghy (pictured) joined Re-Insurance Business to deliver a timely update. For the most part, he’s seeing a strong continuation of the same themes, he said, which reflects a move towards greater discipline and organization across the sector.

“A lot of the time in reinsurance, we tend to focus on US property-catastrophe,” he said. “[During] the June/July US renewals, we did see rate coming off in certain places but it tended to be at the much higher attaching layers. We were disappointed to see the rate starting to be impacted this soon after increases went through but we’re very pleased with the discipline being displayed, that the top layers are the ones hit by rate. Further down the programs, we are seeing both rate discipline remain, which is great, and that attachment points are staying strong.”

Unblurring the line between insurance and reinsurance players

Where there has been increased emphasis in recent months has been on reinsurers creating a clearer distinction between where reinsurers and insurers respectively play. In the few years preceding Hurricane Ian, that line was becoming quite blurry.

In Europe, in particular, there have been some secondary perils where reinsurers were not expecting to see losses. The market has seen significant developments on Italian hail (from the 2023 event) as well as some man-made cats such as the New Caledonia unrest. This shows there’s still work to be done outside of the US to ensure reinsurers and insurers have better delineation in terms of where they play, and to make sure they have the right attachment points and rate in place – which, outside of the US, is often discussed on more of a client-by-client basis.

What’s happening with regards to capital in the market

“Another theme on property-cat we’ve seen is buyers buying more limit, which I think is really good for the market,” Killourhy said. “People weren’t trying to drop down their attachment point, the buyers remained disciplined, but we did see some more buyers looking to buy cover at the top of the program – so bringing a bit more demand into the reinsurance sector, which was great to see.

“[…] We’re not seeing tons of new capital coming in, which is good for the most part. We have seen that some of the traditional reinsurers who have been around for a while have restored their balance sheets during the last four months. So, they’ve had a little bit more capacity to deploy during the course of this year.”

Overall, Killourghy sees that the market is “in a good space”. Traditional reinsurers are becoming a little bit more confident, he said, but the market’s not in a place where rates are so attractive that it’s bringing in tons of new capital and people are seeing the opportunity to make a fast profit.

Building a strong track record

The reinsurance sector went through several years of not covering its cost of capital, Killourghy said, before 2023 saw the market make a strong return. However, one year of generating a return is not going to be enough for new investors to make a hairpin turn towards wanting to invest in reinsurance.

The industry has to build a track record over several years in order to prove it can be a good custodian of capital.

“Outside of property-cat, in casualty, we’ve seen a lot of companies reporting prior-year developments on some of those older casualty years,” he said. “That is causing reinsurers to look at the balance of their portfolios. Some reinsurers who felt maybe they’d become a little bit overweight in casualty have now looked to decrease their weighting to casualty.

“It doesn’t mean they necessarily felt it wasn’t good business, but maybe they felt they were just too exposed to reserve risk.”

The final theme Killourghy expects to emerge amid discussions at Monte Carlo is around cyber, especially in the light of the CrowdStrike incident. He believes that the event serves as a great opportunity to open or re-open conversations.

“It gives us a proof point to ask how we feel about that loss, was it expected, was it priced in, are we managing accumulations sensibly?” he said. “And I think it gives us a good case study – both for the insurance and the reinsurance sectors – to look at how we think about cyber.”

Higher reinsurance policy retention may provide some protection for reinsurers like Munich Re and Swiss Re, but reduced pricing does not fully account for the risks posed by elevated sea temperatures during the current hurricane season, according to a recent report from Bloomberg Intelligence (BI).

The report highlights that while midyear renewal rates declined due to record available capital, pricing continues to be influenced by supply and demand dynamics, even as the industry faces the potential for another record year of catastrophe claims.

The insured cost of natural catastrophe claims reached $62 billion in the first half of the year, according to Munich Re, as cited by BI. This suggests that 2024 could be another year where claims from extreme weather events and earthquakes exceed $100 billion. These losses are significantly higher than the 10-year average of $37 billion.

Total economic costs were reported at $120 billion, which is lower than the first half of 2023 due to the significant impact of the earthquakes in Turkey and Syria last year. The most costly event in the first half of this year was the 7.5-magnitude earthquake in Japan on New Year’s Day, which caused $10 billion in damages, with approximately $2 billion of that insured.

BI senior industry analyst for insurance Charles Graham noted that after record returns for reinsurers in 2023, driven by a mild hurricane season, capital returned during the midyear renewals.

This period was marked by an ample supply of capital to meet increasing demand. Gallagher Re observed that risk-adjusted catastrophe placements were generally flat to down 10%, with reinsurers more inclined to adjust premiums rather than restructure programs. Flood losses in the UAE, southern Germany, and Brazil in the second quarter underscored the companies’ commitment to maintaining retention levels.

This contrasts with the previous year’s renewals, where property-catastrophe rates in the U.S. rose by 10-20% on loss-free programs and by 20-40% on those affected by losses. Rates also increased by up to 20% in Latin America and China, 25% in Australia, and as much as 40% in South Africa.

Following significant price hikes in 2022 and 2023, the June 1 Florida renewals saw a decrease in average risk-adjusted property-catastrophe reinsurance rates by 5% compared to the prior year, according to Howden Re, as noted by BI. The reductions typically ranged between 2.5-7.5%. The demand for an additional $3-$5 billion in capacity limits in Florida was fully met.

Graham further added that the increased demand for reinsurance capacity has been matched by record levels of reinsurer capital. Aon estimates that global reinsurer capital increased by $25 billion in the first quarter, reaching a new high of $695 billion.

This growth was driven by retained earnings, recovering asset values, and new inflows into the catastrophe bond market. The shareholders’ equity reported by global reinsurers is estimated to have risen by $23 billion to $585 billion in the first three months of the year, supported by strong underwriting results and improved investment yields.

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In 2023, global insured losses from natural catastrophes surpassed $100 billion for the fourth consecutive year, underscoring the financial burden posed by increasingly frequent natural disasters.

A significant portion of these losses originated from medium-severity severe convective storms (SCS), particularly in the US, according to insights from S&P Global Ratings.

However, reinsurers faced less exposure to these losses in 2023, thanks to structural changes in reinsurance practices and strategic actions taken during renewals. These adjustments included moving up in reinsurance towers, offering scaled-down limits to cedents, reducing exposure to lower-return period events, tightening terms and conditions, reducing aggregate covers, and repricing risk.

S&P noted that these measures helped reinsurers achieve strong overall performance in 2023 and the first half of 2024, while primary insurers, especially in the US, contended with increased retentions and absorbed the majority of SCS-related losses.

Over the past 18 months, S&P has not downgraded any reinsurers due to natural catastrophe losses, but some US primary insurers have seen negative rating actions where elevated natural catastrophe losses have affected their underwriting performance.

As demand for natural catastrophe reinsurance remains high, it will be critical to monitor whether reinsurers can maintain underwriting discipline amid competitive pressures, which could impact future profitability.

According to the Swiss Re Institute’s Sigma report, global insured losses from natural catastrophes have grown by an average of 5.9% annually from 1994 to 2023, outpacing global economic growth, which averaged 2.7% annually.

The report projects that insured losses will continue to increase by 5% to 7% annually, consistent with trends observed over the past three decades. S&P highlighted that 2023 was the fourth consecutive year in which insured losses exceeded $100 billion, a level that may now be considered the norm.

In 2023, the highest insured losses stemmed not from any single catastrophic event but from a high frequency of medium-severity events, including the Maui wildfires, which caused $3 billion in insured losses – the largest ever recorded in Hawaii.

Losses from secondary perils, including SCS, surged by about 53% to $87 billion in 2023, accounting for approximately 81% of global insured natural disaster losses. S&P observed that this was nearly double the 43% share reported in 2022.

SCS accounted for $64 billion in insured losses in 2023, a record amount that comprised 60% of global insured losses from natural catastrophes – more than double the 10-year average. The majority of these losses, about 84%, occurred in the US, though Europe and other regions also saw increases.

S&P noted that hail damage, responsible for 50% to 80% of SCS losses, was a key driver. In Europe, SCS insured losses exceeded $5 billion annually for the past three years, with Germany, France, and Italy experiencing the most significant impacts.

S&P identified several factors contributing to the rise in global insured losses from natural disasters, including economic and population growth, urbanization, inflation, and the potential impacts of climate change. The concentration of high-value properties in catastrophe-prone areas, such as coastlines and flood plains, also plays a role.

While the exact causes of these trends are debated, S&P noted that the growth in SCS loss costs is primarily driven by inflation, followed by economic and population growth, which lead to more valuable insurable assets. Climate change is also considered a contributing factor, though it is more difficult to quantify.

Since 2017, the reinsurance sector has faced challenges due to the increasing frequency and severity of natural disasters. However, in 2023, the market saw a significant shift, with reinsurers implementing structural changes such as raising attachment points and managing limit profiles more cautiously.

S&P reported that these actions improved reinsurers’ underwriting performance, as natural catastrophe losses in 2023 did not reach the thresholds required to trigger reinsurance policies, leaving primary insurers to bear the brunt of the losses.

Despite the continued high level of global insured losses, reinsurers experienced a reduction in the impact of natural catastrophe losses on their underwriting earnings. According to S&P, the impact on the combined ratio of 10 selected reinsurers fell by 5.5 percentage points in 2023, compared to the average of the previous four years.

In contrast, primary insurers in the US saw an increase in the impact of natural catastrophe losses on their underwriting results, as they retained more risk.

Looking ahead, S&P believes that the events of 2023 will likely influence risk management and mitigation strategies, with primary insurers seeking solutions beyond rate increases. These strategies may include refining risk models, improving exposure-data quality, increasing deductibles, and enhancing the physical durability of insured assets.

However, S&P noted that secondary perils like SCS are not as well modeled as primary perils, making it challenging for insurers and reinsurers to have a comprehensive view of risk.

While the exact drivers of rising loss costs remain debated, S&P emphasized that understanding and managing natural catastrophe risk is essential for both insurers and reinsurers in the current environment.

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Hurricane Debby, the second hurricane of the 2024 Atlantic season, is projected to result in combined wind and water-related insured losses between $1 billion and $2 billion for the private insurance market and public entities, including the National Flood Insurance Program (NFIP) and the USDA’s Risk Management Agency (RMA) crop insurance program, according to Gallagher Re.

The financial loss estimates are preliminary and may change as the event unfolds, particularly as rain and flooding continue across the Southeast.

Economic losses from Debby are expected to be significantly higher than insured losses. Gallagher Re notes that while NFIP take-up rates in coastal counties of Florida, Georgia, and the Carolinas range from 10% to 50%, the percentage of active policies drops significantly inland.

This suggests a substantial portion of flood damage may be uninsured, especially as the storm’s impact extends into the Mid-Atlantic and Northeast, where NFIP participation is also low. Additionally, the agricultural sector is likely to experience notable impacts.

Debby made landfall in Florida nearly a year after Hurricane Idalia’s landfall as a Category 3 storm in August 2023. Many residents in the Big Bend area were still in the recovery and rebuilding process when Debby struck, just miles from Idalia’s landfall site.

Gallagher Re highlights that recent Category 1 hurricanes in Florida have typically led to insured losses around $1 billion, primarily due to wind impacts. However, Debby’s stalling nature and heavy rainfall caused oversaturated soils, leading to more extensive wind-related damage than might be expected from a weaker storm.

Preliminary assessments suggest that while wind-related damage was less severe than initially feared, insured losses could still reach into the hundreds of millions of dollars. The widespread presence of trees and brush in northern Florida, Georgia, and the Carolinas contributed to the damage, as saturated soils made it easier for even moderate winds to topple trees.

Flood-related insured losses are expected to be more complex, with significant impacts already reported and more likely to emerge as the storm progresses. Gallagher Re anticipates that the private insurance market will face losses in the hundreds of millions of dollars, particularly from auto policies and privately underwritten residential or commercial flood policies.

NFIP payouts are also expected to reach into the hundreds of millions of dollars, depending on the final extent of the rainfall and flooding. For comparison, Hurricane Florence in 2018 resulted in $920 million (adjusted to 2024 dollars) in NFIP payouts.

Gallagher Re emphasizes that NFIP participation drops sharply in inland counties, increasing the likelihood that a significant portion of flood damage will go uninsured. In 2023, NFIP payouts from Hurricane Idalia exceeded $380 million, with most losses concentrated in the Tampa Bay area.

The overall expectation is that Debby will be a manageable event for the reinsurance industry, with combined wind and water-related insured losses falling within the $1 billion to $2 billion range.

Debby is the sixth hurricane to make landfall in Florida in August since 1990 and follows Hurricane Beryl’s record-breaking path earlier in the 2024 season.

As of the latest reports, Debby has caused at least seven fatalities and left over 350,000 customers in Florida without electricity at its peak, with additional outages reported from Georgia to the Carolinas. Thousands of flights were canceled or delayed, and the governors of Florida, Georgia, North Carolina, South Carolina, and Virginia have declared states of emergency.

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Legacy acquirer DARAG Group has announced the planned sale of its North American and Bermuda business entities to RiverStone Group. The transaction, which is subject to regulatory approvals, is expected to be completed by the end of the year.

DARAG highlights that both its North American and Bermuda operations have established a solid presence in their niche markets. DARAG and RiverStone Group said that they will work together to ensure a smooth transition for the business entities and their active transaction pipeline.

The sale is part of DARAG’s strategy to streamline its operations and concentrate on its core European market. The transaction will also provide DARAG with additional capital to advance its pipeline of European transactions, several of which are already in advanced negotiation stages.

Tom Booth (pictured above), CEO of DARAG, said that the group was pleased to transfer this well-established niche business to RiverStone. He also highlighted the opportunity the transaction presents for DARAG to focus its resources on its European business, where the group maintains a strong, well-capitalized position.

RiverStone Group president Bob Sampson said that integrating DARAG’s North American team will add valuable talent to RiverStone’s teams.

“This acquisition perfectly fits our growth strategy, bolstering our capabilities and significantly boosting our market visibility in several North America insurance segments. We’re confident that this transaction will fuel innovation, inspire superior service, and create a powerful synergy that benefits our clients,” Sampson said.

DARAG was advised on the transaction by PJT Partners and Nomura as lead financial advisers, RBC as financial adviser, and Proskauer Rose LLP as legal adviser. RiverStone was represented by Norton Rose Fulbright US LLP as legal advisers.

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Discussions with reinsurance brokers reveal the variety of routes into the sector – and the unique intricacies of what catches and holds the attention of reinsurance talent.

Pathways into reinsurance

Sharing how she joined the market, Sarah Willmont (pictured left), senior broker at Lockton Re, highlighted how she started her broking career in the non-marine retro division of Benfield. “I joined as a graduate trainee in one of the first schemes of that type back in 2001,” she said. “The timing was interesting as the market was in major flux being only a few weeks post WTC and so I joined at possibly the hardest point in the cycle.”

She loved working with that team, Willmont said, and it was a “brilliant” introduction to the industry so she remained there for 14 years. During that period, Benfield was bought by Aon, which she noted brought dramatic changes to the company, the market and the team that she embraced as the opportunity to try something new.

That ambition to always get “stuck in” and try something new is a throughline of Willmont’s career and while she never lost her love of reinsurance broking, she jumped at the opportunity to move across to the underwriting treaty team at Canopius. There she enjoyed a “fantastic” decade which saw her become one of the youngest ever active underwriters in Lloyd’s, at only 36, and later CEO of Canopius in the UK.

When the time came to rebalance her priorities and assess the impact of her career choices on her family life, Lockton Re proved a natural home, and Willmont was delighted to return to reinsurance broking.

The story for George Cantlay (pictured right), a partner in McGill and Partners’ reinsurance team was a relatively similar one, as he started his career in Aon’s graduate scheme. The way the scheme was set up, he said, meant you spent three-month secondments with various teams across the wider business. Having started in the UK & Ireland property and casualty reinsurance division, he then moved to the global clients team, where he ended up spending over two years before joining McGill.  

Progressing in reinsurance careers

Tracing his reinsurance roots back, executive vice president & head of Acrisure Re’s Florida office, Craig Darling, said he was introduced to the sector during his time at Chubb, where he worked in the insurance giant’s excess and umbrella division. “During my tenure at Chubb, numerous facultative reinsurance markets called on me to place reinsurance,” he said.

“We considered reinsurance on auto-driven risks and, in some instances, the risk manager would consider grossing up the amount of capacity limit they were offering to clients. This exposure piqued my interest in reinsurance, albeit facultative. It was very technical, with an exposure-rated pricing approach and view on experience rating too.”

What first captivated his interest, he said, was the ways in which this work was similar to Chubb’s underwriting and pricing approach to the business as an umbrella underwriter. “I enjoyed discussing underwriting attributed off a risk and how I derived pricing,” he said. “The reinsurance markets were looking at the business in a similar fashion and were trying to validate our approach to risk evaluation and, ultimately, pricing.”

Eventually, Darling transitioned to a reinsurance underwriter position, managing facultative and program business across North America. There he was at an inflection point in his career – whether to continue in the underwriting vertical or try his hand at being a reinsurance broker. Having developed some very strong broker relationships while being a facultative and program reinsurance underwriter,  numerous intermediaries were offering him an opportunity to transition to the broking side of reinsurance.

“In the end, I made the decision to become a reinsurance broker in 1997, starting with facultative and program-oriented roles and gradually shifting to program, obligatory, and treaty business,” he said. “Coincidentally, I began my career as a casualty broker, having been trained as a casualty underwriter.

“However, for the last 15 years, I have focused on program and treaty business, with a strong emphasis on property critical catastrophe. I was given the opportunity to establish and expand this product offering at Acrisure Re, and I currently oversee its center of excellence initiative.”

What reinsurance brokers enjoy about reinsurance

Having enjoyed every step and stage of her reinsurance career to date, Willmont said it is its people who keep her interest alive and well because, “you don’t get on in this sector without a love for people.” Looking at reinsurance broking in particular, she highlighted the opportunity you have as a broker to really deliver for a client and that, “nothing is more satisfying than making a client happy”.

“But also,” she said, “I am curious by nature, and I get bored easily so having the privilege to get insight into the many businesses we are lucky enough to represent works for me.” In her role at Lockton Re, Willmont highlighted that shining a spotlight on the people who are behind the success of any business strategy is critical.

“As Lockton Re grows and expands its global retro capabilities it is committed to attracting and retaining the most talented people in the market, but importantly talent that wants to work in a collaborative way,” she said. “I have seen this demonstrated at every level in this team since joining., with really talented people working together to do the best job for clients. It is amazing how refreshing that is – not only to work with, but from a client’s perspective also.”

People plus technical expertise – a recipe for success?

Having enjoyed work experiences in the sector, his graduate program and his experiences at McGill, the best thing about reinsurance for Cantlay is how it combines technical expertise with the opportunity to work closely with people. It remains a fundamentally relationship-driven industry, he said, which is a large part of why he finds the industry so fascinating.

Similarly, for Darling, his interest in reinsurance broking stems from how it blends marketing, risk assessment and all aspects of the technical rating, modelling and forecasting attributes of portfolio management. “Having a background in underwriting,” he said, “I developed a technical skill set that has been invaluable in understanding and pricing business.

“This technical knowledge, paired with the dynamic nature of marketing and client interactions, keeps my role engaging. The versatility to discuss various topics, from casualty exposures to peak property catastrophe in the Southeast US and Florida property-centric companies, always ensures meaningful and interesting discussions with clients, which remains a significant aspect of my job.”

He also noted that starting his career as a primary underwriter and then transitioning to a reinsurance underwriter had been extremely helpful to Acrisure Re’s clients, as well as when broking business to reinsurance underwriters. This multi-faceted background has enabled him to sit down and talk about a variety of topics and product offerings with deep understanding of exposures, he said.

“It is also helpful when marketing to an array of clients,” he added. “As a producing broker, understanding the diversity of lines of business and products is a powerful capability in client advisory and advocacy as a reinsurance broker.”

The following article was supplied by Open GI.

It seems no more than a blink of an eye since generative artificial intelligence (AI) launched itself on the unsuspecting world.

Since then we’ve seen a variety of models come to the fore ready to revolutionise how the world creates and does business. The insurance industry is riding the crest of the AI wave and brokers are already taking advantage of this rapidly advancing technology.

AI – a friend instead of a foe

Software providers are already helping their broker partners access AI and utilise it as a friend instead of a foe. Brokers using Open GI’s Mobius platform can already use a comprehensive suite of AI tools.

Our partnership with OpenAI – the brains behind AI posterchid Chat GPT – gives us access to a range of widgets designed to simplify a broker’s day-to-day tasks and free-up intellectual capital to focus on more complex jobs.

Typically, Open GI’s AI suite uses Large Language Models (LLM) to specifically develop the right AI tools to help brokers solve their problems and mitigate any pinchpoints.

AI in action

A good example is the Mobius ‘too long, didn’t read’ tool. We specifically designed this to help brokers get up-to-speed with their clients’ history within seconds of answering the phone.

The tool leverages LLM’s ability to speedily summarise any text and instantly analyse the customer profile and history to give the agent a concise but comprehensive rundown of a customer’s backstory, all within seconds of answering the phone. Brokers are already using this service and agents are freed-up to focus on complex, non-standard business thanks to the time the LM widget can save.

AI can also work with images which can be particularly helpful to brokers when customer data is uploaded to their systems in a variety of formats. Sometimes customers will scan a document and provide an image featuring the data required to support their insurance needs. In cases like this, image recognition AI, known as Document Intelligence which will soon be added to Mobius, can scan these documents to quickly extract important information, highlight discrepancies and flag if action is required.

For instance, if a potential policyholder claims a 5-year no-claims history, but their documents only verify 4 years, the AI quickly identifies this discrepancy. This allows the broker to discuss the issue with the client after providing a quote and make any necessary adjustments. Without this technology, a human would need to manually review and compare the documents, creating a bottleneck in the final approval process after binding. This technology ensures the accuracy of all information, protecting the customer, broker, and insurer during a claim—a success for everyone involved.

AI and virtual assistants – what’s happening?

AI is also making effective virtual assistants affordable for all. Open GI is exploring using technology known as Open Dialogue – the same model that powers Chat GPT – to develop virtual assistants, which go further than chatbots, to help customers.

These are being built and trained to answer customer queries quickly, without having to involve a human. For example, a customer wants to know if their travel policy covers water skiing. Instead of calling their broker, they can look online, where an AI bot can quickly scan their policy document and answer their question, saving them a long wait on hold until a call centre agent becomes available and, again, freeing up brokers to address more complex, profitable queries.

All of this is achievable because Mobius is backed by the Microsoft Azure platform, which collaborates with OpenAI, the leading AI developer and creator of ChatGPT. This partnership enables Open GI to immediately access and tailor the latest AI models to address the unique challenges faced by our broker customers.

Furthermore, the Azure platform ensures that our brokers’ data remains secure and protected from cyber threats. Data is managed on a ‘need to know’ basis, meaning it is anonymized and shielded from both Microsoft and OpenAI. Only our brokers and we have complete access to the information.

It’s clear the brokers can harness AI as a friend to help them to speed-up day to day administration and make light work of simple tasks that in the past could be time-consuming. AI doesn’t have to be a threat  and should be implemented purposefully, only in areas where it can add value and address genuine broker issues.

Mobius brokers are at the forefront of utilizing AI to enhance value for their customers and insurers.

A recent analysis from Munich Re Group offered a timely update into natural disaster losses in the first half of 2024 – with global losses reaching $120 billion while global insured losses hit $62 billion, significantly higher than the 10-year average of $37 billion.

Sharing insights into the overall loss figures, Tobias Grimm (pictured), head of climate advisory and natcat data at Munich Re, noted that while these were lower than the previous year (at $140 billion), they exceeded the average values for both the past 10 years and the previous 30 years. He also highlighted how some five decades of collecting data on natural hazard losses had led the reinsurance giant to uncover two key contributing factors behind increasing losses.

The first of these is the changing spread of wealth and assets, as, even when factoring inflation into the mix, values are increasing all the time as humans continue to settle in regions highly exposed to natural hazards. The second is how the global climate is changing. “That’s what we’re investigating thoroughly, by region and by peril,” he said. “Overall, climate change leads to more intense weather extremes, mostly related to flooding, severe convective storms, heatwaves, droughts and wildfires – and to some extent, also to a change in the frequency of these events.”

It is this observation that has led to the development of climate attribution studies which look to link one single extreme weather event with climate change. The question at the core of climate change data is around likelihood, and the likelihood of these events is changing as once-in-100-year events become once-in-50-years, or even once-in-20-year events.

Global insured losses – what’s happening?

Zeroing in on global insured losses and how these have evolved – both year-on-year and over the course of the last decade – Grimm cited how six of the seven years from 2017 onwards saw global insured losses hit or exceed the “new normal” of $100 billion or higher. This figure hit $62 billion in H1 of 2024 alone, he said, and, putting that into perspective, statistics show that the second half of any given year is usually costlier, given that the peak of the hurricane season begins in H2 and tends to contribute the most to the overall losses.

“Peak season is now August, September and October, that’s where we expect lots of hurricanes. Our expectation is of seeing 23 named storms – out of them, 12 hurricanes and six as major hurricanes,” he said. “The high number is expected as sea surface temperatures are very high in the main development regions and once the oceans are at that point, it’s great fuel for the formation of hurricanes.”

Where does the global protection gap stand today?

Turning his attention to the proportion of insured versus uninsured assets, Grimm highlighted how the global protection gap is fluctuating over time. Looking to H1 2024, he highlighted that the gap was quite low, with only 48% of losses uninsured, which was largely due to the bulk of losses coming from SCS (Severe Convective Storms) losses, which are relatively well covered in the US.

The protection gap over the last 30 years has been 68%, he said, which is trending to reduce over time, largely due to the development of insurance schemes in the less developed world, though those efforts are not without their obstacles and challenges. There are a lot of technical reasons why the insurance protection gap still exists today, not least because of how coverage schemes are either not established or simply not well known.

Assessing non-peak or ‘secondary’ perils

A key finding of the Munich Re report looked to the impact of non-peak or ‘secondary’ perils, with 68% of overall losses, and 76% of insured losses, attributable to severe thunderstorms, flooding and forest fires. “Non-peak perils are really top of mind for our industry,” Grimm said.

“It’s on us to diversify portfolios across regions and across types of risk. Our business model is always about diversification. We potentially also use financial tools such as catastrophe bonds, so we’re transferring risks further down the capital market to further spread out the risks. Our overall risk appetite is always defined by our risk strategy, by our business strategy, and also by regulatory requirements and capital constraints.”

The Munich Re approach is not to necessarily limit its exposure to any particular peril but rather to take the time and effort required to wholly understand the peril and to refine its models with regard to non-peak perils. The group is always looking to engage with the most recent research, he said, from both actual events and climate scientists and to feed those insights into its models in order to stay on top of its risk exposure.  

What’s next?

Grimm noted that after a very costly half-year, the market is facing a potentially very active hurricane and wildfire season.

“If we think about increasing losses, someone needs to foot the bill,” said Grimm. “And either it’s the government or it’s the insurance industry, or it’s the insured person themselves.

“That’s why it’s that important to reduce future losses by thinking ahead about preparedness topics [whether through] flood retention schemes, putting protection measures in place, or having early warning systems for tornado outbreaks and hail storms, etc… It really is an ever-increasing topic.”

The recent CrowdStrike event has underscored the risks associated with digital supply chain interconnectedness. The incident not only affected CrowdStrike’s customers but also extended through third-party networks, impacting various unrelated industries.

Despite the disruption, insurers have largely maintained their coverage for clients, reflecting the cyber insurance market’s resilience.

In its latest report, Guy Carpenter has provided estimates and insights into the losses from this event, evaluating its implications for underwriting and catastrophe risk management. While the affected devices represent only a small fraction of Microsoft’s total, the update issue caused significant global operational disruptions.

This included the cancellation or delay of over 7,000 flights and impacts on critical infrastructure sectors like healthcare, retail, financial services, and hospitality. Many insured parties have filed notices of circumstances, and the claims process is still in its early stages.

The event has prompted consideration of accidental event scenarios alongside malicious ones by cyber catastrophe model vendors. The CrowdStrike outage, while non-malicious, highlighted the difference in response and cost between accidental and malicious incidents, such as those involving system failure, which lack costs like forensic expenses and data restoration that are common in malicious cases.

CrowdStrike outage – how did it impact re/insurance?

Guy Carpenter estimates that the non-malicious nature of the outage limited its overall impact. Less than 1% of companies with cyber insurance globally were affected. The rapid deployment of a fix allowed many organizations to address the outage before the typical four- to 12-hour waiting period for business interruption claims expired.

As a result, the estimated insured loss ranges between $300 million and $1 billion. Guy Carpenter’s findings suggest that most insurers will not experience material losses from this event, although variations in policy wordings, industry sector concentration, and system failure coverage uptake could influence outcomes.

In a scenario where the event had been malicious, Guy Carpenter estimates that losses could have reached between $600 million and $2 billion. This potential severity highlights the increased risk for organizations dependent on widely used software and operating systems.

The incident also provided a learning opportunity for both technology providers and their clients. CrowdStrike’s quick response and transparency helped mitigate the disruption, and the company has announced measures to reduce the risk of similar events in the future.

This event serves as a reminder of the need for robust risk management practices in the face of technology-dependent operations.

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