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The full extent of the regulatory risk facing C-suite executives was laid bare in a report published by Gallagher earlier this week, which highlighted the operational, legal and administrative burdens these risks can incur. Citing statistics from the UK Centre for Policy Studies, the research noted that annual net regulatory costs for businesses have increased by £6 billion while executives look to manage and mitigate these costs in the context of a fast-evolving business environment.

Considering the capacity of regulatory risk to restrict a company’s ability to conduct business, how aware are directors and officers of the risks they face – and what is the role of the broker in helping to manage their exposures?

Understanding the full extent of D&O risks

Sharing his perspective as someone who joined the broking market after some 15 years working with Chubb and AIG, Steve Bear (pictured) said it’s an “eye-opener” to see how many clients don’t necessarily understand the fundamental building blocks of D&O. Now almost five years into his role as executive director of financial & professional risks at Gallagher, he highlighted that across the full spectrum of clients his team supports, there are executives who don’t fully understand the D&O cover they’re buying or, and more worryingly, the full extent of their own exposures.

“It’s not just the more nuanced aspects of this that are being missed, it’s also the simple ‘D&O 101’ things – like understanding that if you’re a director of a company, your liability is not limited,” he said. “I’ve met clients that don’t necessarily grasp that, which is why I think it’s so important to have these discussions and to put in place the right education about this risk and how it can be managed.”

What’s keeping D&O clients awake at night?

In terms of what he’s hearing is keeping D&O insurance clients awake at night, Bear noted that financial pressures have long been the “cornerstone” of D&O claims, as the vast majority of these tend to find their roots in some form of a financial loss. Whether it’s a lender who hasn’t been repaid, a customer who hasn’t seen contracted through to completion, or a shareholder who has taken a hit due to a drop in share price, there’s often a strong financial component to these claims.

How D&O trends are evolving

In addition, there is a trend away from strictly financial-led claims and the growing focus on business activities, as shaped by the regulatory lens that sits around them. “We increasingly see underwriters really looking at wider ESG factors – in fact, drop the ‘G’ because good governance has always been highly important. It’s the ‘E’ and the ‘S’ that clients are actually more concerned about now,” Bear said.

Gallagher’s report into ‘Navigating Regulatory Risk’ revealed that 62% of senior leaders at large UK businesses are concerned that their ESG targets put them at risk of litigation. Meanwhile, 72% admitted they felt pressure to set these targets without a concrete game plan of how to achieve them and 54% believe legal action over missed ESG targets is far more likely now than a decade ago.

It’s unsurprising that environmental risks have risen to the fore, he said, as climate events and climate change have been front-page news, attracting the attention of media, government and investors alike for some time now. However, he is seeing that it’s actually the social factors that are proving the most difficult for D&O clients to wrap their heads around because the exposure is poorly defined and, as a result, can seem quite limitless. “As an example, it’s hard to grasp that you are responsible for your entire supply chain when you’re manufacturing goods and you have a duty to make sure every component part is sourced from a good supplier who has maintained good working practices.

“Then there’s also the level of social outrage – fuelled by social media – that can follow any kind of bad corporate behaviour or even just unfortunate corporate events. The reality is that companies can and do go bankrupt. Competition dictates that in a free and open economy, not every company will succeed. But there’s outrage over a company failing while directors are well paid, or over the government not stepping in to rescue jobs. Ultimately, the buck stops somewhere and it’s normally at the boardroom door.”

Non-executive directors and the risks they face

Once upon a time, taking up a few NED positions was the logical next step for executives reaching retirement age and looking to keep their hand in the corporate world. “In times past, it was quite a cushy little number but now, regulators are cutting their teeth and looking beyond the main exec board to establish checks and balances among these NEDs who are supposed to be independent and call out when something is too risky, or the business practice isn’t sitting right,” Bear said.

Adding commentary to Gallagher’s recent report, Bear noted that increased regulation poses a ‘double-edged sword’ for D&O insurers. While it’s easy to assume that more regulation means more D&O claims, he said, without a codified set of rules to follow, “companies and their directors are left to their own devices and best endeavours, which creates a lot of uncertainty.” Certainly, he said, his team are seeing that the purchasing decisions around D&O insurance are being driven as much by NEDs as the main board.

“We’ve had clients phoning up to say they’ve had some investment and they’re putting a new NED on the board who’s asking they buy D&O cover, and they want a quote,” he said. “It’s understandable that NEDs are increasingly concerned about their exposure but the main board is likely to be the first target which may use up most of the limit leaving non-execs having to fund their own defence.

“And it’s normally after the main board has been investigated that the regulators or the claimant will move onto how the NEDs didn’t stop the main board from making a mess of things. And when bringing a claim against them, often there’s very little limit left.”

Insurtech provider Zywave has released the results from its 2024 Broker Services Survey, which offers insights from employers across the United States regarding their primary business challenges and expectations of insurance brokers.

According to the survey, nearly 92% of employers believe their business outlook for 2024 is either comparable to or better than the previous year. Additionally, close to 86% of respondents reported satisfaction with the services provided by their insurance brokers.

Patrick Noonan (pictured above), Zywave’s vice president of content development, noted that while consumers, including insurance buyers, are demanding, the majority of respondents are satisfied with their brokers’ services.

He also emphasised the importance of brokers remaining attuned to their clients’ evolving challenges and needs to maintain strong relationships and client retention.

The findings from the 2024 survey align with trends from previous years, indicating that employee attraction and retention, compliance, and technology remain critical areas of focus for employers.

Nearly 83% of respondents expressed a desire for consistent communication with their brokers, with weekly or monthly updates on specific insurance topics, highlighting the ongoing expectation for prompt and effective service.

In 2024, employers placed the highest value on client service and a broker’s expertise in their professional relationships. When selecting a broker, 57% of employers prioritised the ability to provide prompt and effective service, along with timely responses to their questions.

Additionally, 53% of employers sought brokers who act as trusted advisers rather than merely salespeople. Other important criteria included the ability to negotiate renewals, valued by 48% of respondents, and the provision of compliance resources, which 33% of employers considered significant.

The survey also asked employers to identify their top concerns related to insurance. Financial considerations and policy coverage emerged as leading issues in both employee benefits and commercial insurance.

Employers cited mitigating health care costs, offering a competitive benefits package, and attracting and retaining employees as their primary challenges in the employee benefits area. In terms of commercial insurance, understanding the appropriate level of insurance coverage, affording insurance, and implementing risk management and employee safety strategies, policies, and procedures were identified as the main concerns.

Noonan remarked that the survey responses suggest employers continue to face many of the same challenges as in previous years, with the current insurance market conditions increasing pressure on brokers to deliver a higher level of industry knowledge and expertise.

Zywave has conducted the Broker Services Survey for over a decade, aiming to provide brokers with valuable insights to help them prioritise their services and address their clients’ most pressing business challenges.

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While the full ramifications – economic and legal alike – have yet to be entirely mapped out, across the reinsurance and insurance markets attention has already turned to what the recent CrowdStrike systems failure means for the future of cyber risk. During a market briefing, Erica Davis (pictured), MD and global co-head of cyber at Guy Carpenter, highlighted how, from a reinsurance perspective, the global tech outage had the potential to be, “the cyber catastrophe the industry has spent a lot of time focusing on but hadn’t yet experienced.”

How the reinsurance market readied itself for the CrowdStrike outage  

“So, we braced ourselves,” she said, “for how big the loss would be, how long the downtime could last, and, from a reinsurance perspective, how many reinsurance cat covers could potentially respond. Instead, this loss was actually fairly contained. In fact, according to Guy Carpenter’s analysis, less than 1% of all companies globally were impacted.

“Now comes the billion-dollar question – how big is cyber catastrophe when events like this occur. The estimates for CrowdStrike have been fairly wide ranging. Fitch reported financial loss up to high-single billion-dollar digits across the overall market. Cyber modelers have indicated a range between $400 million and 1.5 billion. And last week, Guy Carpenter released our estimate of $300 million to $1 billion in loss, and that’s to the cyber market, which would equate to about two to six points of industry loss ratio.”

What concerned the reinsurance market most about CrowdStrike?

Davis noted that the universal reinsurance market consensus is that the loss is “sizeable but manageable”, given the market’s $15.5 billion size. Identifying some of the key reinsurance market concerns, she has seen triggered by the event, she pinpointed how its potential severity has reinforced the need to understand digital supply chain interconnectedness.

Secondly, the aggregation of the losses, particularly when it comes to business interruption and contingent business interruption have been notoriously challenging for the market to underwrite. “In cyber, those supply chains can appear seemingly opaque, so there’s a lot of focus in terms of understanding those impacts,” she said. “Thirdly, we need to understand the loss difference between malicious and non-malicious and how that translates to financial loss.

“One example is that the profile of an accidental outage lacks some of the loss components that we see in a malicious event, and that brings down the industry loss estimates as to how these cyber losses could potentially model.”

Was CrowdStrike included in cyber vendor scenario catalogs?

Addressing whether this event was included in the cyber vendor scenario catalogs, Davis noted that, “it was and it wasn’t”. Some cyber catastrophe models have included non-malicious intent, whereas others have focused more on malicious intent. That means there isn’t a scenario footprint that’s easily translatable to how this outage occurred.

However, she said, existing models can form a basis for how the market thinks about or derives an industry loss estimate. To do just that, Guy Carpenter took a number of scenarios, and applied some bespoke ‘scalers’ to mimic the July outage severity and footprint. It then also tracked some of the technological dependencies that it was able to access through various vendors, allowing it to formulate an estimate for how to think about events that aren’t directly available in the cyber cat vendor scenario catalogs, and so better understand how this event occurred.

“Lastly,” she said, “in the reinsurance landscape, all of this contributed to a shifting view of cat risk. As the cyber industry continues to mature, I think we have to reevaluate how we’re thinking about cyber catastrophe. It may not be the super single cat event that we’ve expected in the past, and instead, might be a series of ‘kitty cats’ or smaller to mid-sized catastrophe events that aggregate throughout a single policy or treaty period.

“That’s what we’ve experienced so far over the last 12 to 24 months, and will become an increasing focus for the industry. So as the industry grows, the market understanding of large market-moving systemic risk, alongside these more frequency-driven, small to mid-sized events, is going to help us evolve our understanding of cyber risk and underwriting for the future.”

Is the re/insurance industry prepared to deal with ever-evolving cyber risk?

Offering insights into how well appointed the insurance and, in turn, the reinsurance industry is to deal with the growing and changing face of cyber risk, Davis said she sees the market is currently well equipped. As the market has matured, cyber writers have become increasingly comfortable with this attritional risk i.e. non-catastrophic day-to-day exposures. For that reason, reinsurance buying strategies have shifted in the last 12 to 24 months.

“In parallel to that,” she said, “what we’ve seen is risk tolerances recalibrate. There’s been a lot more focus on catastrophic covers, allowing cyber writers to retain more margin and focus instead on protection for the tail. All that means there’s a growing range of reinsurance structures that are available in the non-proportional market and that are commercially viable. Some examples of those are industry loss warranties, cyber cat bonds and event covers.”

Applicable to many of the structures and especially on the event cover side, Davis emphasized the importance of the market taking a close look at cyber catastrophe event definitions. Currently, there are over 25 different event definitions existing in the market, and with each of these events – big and small – it’s important, as a market, to stress-test these definitions.

This will allow the market to understand the limitations of gaps of these definitions, allowing it to refine its approach and to create bespoke, customized wording that reflects each client’s view of risk. “That’s really important as a market, because we need to understand what sort of basis risk exists when we’re starting to craft these catastrophic covers. Overall, the market’s well prepared and we’re equipped to deal with these sorts of events. We’re learning so much through the modeling, and we’re creating more effective, suitable structures in order to protect the capital of these cyber writers.”

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.”