Insurance news

The CEO of Munich Re, Joachim Wenning, has pushed back against calls to lower the price of natural catastrophe coverage, characterizing the demands as “noise” and “nonsense.”

Speaking to the Financial Times, he argued that rising reinsurance costs reflect increased claims and expenses rather than any attempt to exploit the market.

The steep rise in reinsurance prices has contributed to growing concerns about the affordability of insurance for consumers looking to protect their homes and businesses from natural disasters like wildfires and severe storms.

In the interview, Wenning responded to suggestions that reinsurers should help ease the burden on businesses and consumers. He pointed out that while the industry has experienced significant profits from higher prices, such profits follow years of substantial losses.

Wenning said that primary insurers, who rely on reinsurers for coverage, could reduce costs by purchasing less reinsurance.

Wenning noted that Munich Re’s record profits in the first half of the year were partly driven by the rising cost of property coverage, with the company now holding a market capitalization of €65 billion.

“I never hear the opposite of these statements, when the market cycle is a little bit softer, that they say: give the reinsurers a little more, they deserve it, because they don’t make enough money. This is very asymmetric, this is noise, this is nonsense,” Wenning said.

Despite the strong financial position of reinsurers, Wenning acknowledged that affordability could become a growing issue for consumers in high-risk areas, particularly as climate change leads to more frequent and severe natural disasters.

He warned that the cost of insurance would rise accordingly, making it harder for both businesses and households to afford coverage in disaster-prone regions.

Wenning also commented on proposals for more public-private partnerships to manage the financial fallout from natural disasters, as some policymakers have suggested expanding existing schemes that cover flooding and extreme weather.

He said any such programs should be designed to avoid distorting prices, emphasizing that higher-risk properties should still carry higher premiums.

“If you have property in a highly risk-exposed area, you should pay more,” he said. “If that doesn’t happen, we socialize the risk.”

Wenning warned that reducing financial incentives for property owners to mitigate their risk could lead to increased losses in future disasters. He also stressed that reinsurers maintain high solvency ratios to safeguard against significant losses.

Munich Re’s solvency ratio, for example, rose to 287% in the first half of the year, well above its target range of 175% to 220%, suggesting the company has excess capital.

Regarding potential mergers and acquisitions, Wenning noted that Munich Re may consider expanding its US specialty insurance portfolio or growing its primary insurance division, Ergo, in markets where it already operates. He said deals in the €1 billion to €5 billion range are realistic.

Wenning also addressed the threat posed by large-scale cyberattacks. He indicated that a public-private scheme might be necessary to share the losses in the event of a major incident, such as an attack that disrupts a country’s energy supply.

Wenning pointed out that the market currently lacks the capacity to provide sufficient coverage to large companies for such events, leaving them to manage and mitigate the risks themselves.

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The reinsurance industry continues to demonstrate its resilience in the face of market volatility, with investors consistently valuing the sector for its stability, according to insights from the Boston Consulting Group’s (BCG) 2024 Insurance Value Creators Report.

Despite the high-stakes nature of the business, where claims often total in the billions, the reinsurers with the most consistent year-over-year performance have proven to be the most reliable value creators over the past decade.

Reinsurers delivered an annual total shareholder return (TSR) of 11.5% over the past decade and 13% over the past five years, outpacing the broader insurance industry. BCG notes that this performance would place reinsurers close to the first quartile among all sectors in global value creators rankings.

The industry benefited from a relatively quiet period after major natural catastrophes in 2018 and 2019, followed by the disruptions caused by the COVID-19 pandemic in 2020 and 2021.

A significant portion of reinsurers’ TSR over the last decade has come from dividends and share buybacks, accounting for more than half of total TSR in the past 10 years and 40% over the past five years, according to BCG.

Growth in tangible book value (TBV) for reinsurers has also improved, trailing only the pure-play property and casualty (P&C) insurance segment. This improvement has been driven in part by a higher return on equity for reinsurers in recent years.

Top reinsurers, including Hannover Re, Munich Re, and the Everest Group, have consistently generated long-term value through effective risk selection, assessment, pricing, and the use of advanced data and technology.

BCG reports that these companies not only excel in TSR but also rank highly in terms of risk-return performance. However, not all reinsurers have met these benchmarks, with some delivering TSRs below the cost of equity.

P&C leading the way

Within the reinsurance sector, property and casualty (P&C) reinsurers outperformed life and health (L&H) reinsurers. According to BCG, P&C reinsurers achieved higher returns, while L&H reinsurers faced negative underwriting margins.

The five-year return on tangible equity (RoTE) for reinsurers has improved over the past year but still lags behind the primary insurance sector’s RoTE, especially in P&C and L&H segments.

Looking ahead, reinsurers will need to address shareholder expectations for continued TBV growth, BCG advises. Top performers will focus on balancing profitable growth, cash flow contributions, and multiple expansion.

Although dividends and share buybacks have played a significant role in supporting TSR, BCG notes that over-reliance on these strategies could weaken companies, especially if market conditions soften.

The robust market of recent years should have allowed companies to build reserves, but softening in some commercial lines in primary insurance markets could impact reinsurance pricing in the near future.

Prepping for climate risks

BCG highlights that as climate change leads to more frequent natural catastrophes, reinsurers may need to adopt a longer-term view, potentially accepting lower cash flow contributions to TSR as they shore up capital for increased capacity requirements.

The growing need for additional capacity, particularly driven by investments in the green transition, could place further strain on the sector. According to BCG, $19 trillion in green transition investments committed through 2030 will require an estimated $10 trillion in additional insurance coverage.

Premiums for physical risks and natural catastrophe protection are expected to rise by 50% by 2030, reaching between $200 billion and $250 billion globally, BCG reports. This increase will be driven by climate-related events and other factors, including the need for more protection against large-scale disruptions.

In addition to climate risks, cyber threats also pose significant challenges to the industry. BCG and Howden, an insurance intermediary, have noted that a recent global cyberattack, triggered by a flaw in a software patch, could result in billions of dollars in insured losses, underlining the growing risk in a highly connected world.

Amid these developments, reinsurers are likely to remain a source of relatively stable returns for investors, despite the mounting challenges posed by climate change, cyber threats, and shifting market dynamics.

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Independent specialist re/insurance broker Miller has announced the appointment of Andrew Gordon to its marine team, further strengthening its capabilities in the sector.

Gordon brings over 40 years of experience in marine insurance, having most recently served as Managing Director at Seascope Insurance Services.

He began his career in 1973 at Lloyd’s broker Morice, Tozer & Beck, building extensive expertise in the market over his five decades of service.

This appointment is part of Miller’s broader strategy to expand its Marine operations, following the addition of several senior professionals last year, including Andreas Bisbas, Nick Lockyer, Lee Bright, and Craig Dennis.

Nick Summers, head of direct marine at Miller, said Gordon’s extensive experience and strong relationships with underwriters will play a crucial role in the development of Miller’s Marine offering.

“Andrew’s distinguished reputation will further enhance our high standards of client service and the expertise that sets Miller apart,” Summers said.

Gordon also expressed his enthusiasm about joining Miller, stating that he looks forward to contributing to the company’s marine market offering.

“I’m excited to work with Nick and our colleagues to further enhance Miller’s standout offering in the Marine market, and I look forward to supporting our prestigious clients as we continue to meet their evolving needs,” Gordon said.

Miller also expanding in non-marine lines

In July, Miller also appointed Kazuhiko Shinkai as head of its non-marine Japan strategy. Shinkai is responsible for the operational management of Miller’s Japanese business and will lead the expansion of its non-marine operations through Lead Insurance Services Limited.

This move continues Miller’s strategic growth in the Japanese market, where it aims to strengthen its local presence and diversify its services.

Shinkai’s appointment is part of Miller’s ongoing efforts to broaden its global footprint, particularly in regions like Japan where the company sees significant growth potential.

With Shinkai at the helm of its non-marine operations in Japan, Miller highlighted that it is focused on expanding its offerings and building long-term relationships with clients in the region.

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Bermuda’s premier, David Burt, has defended the strength of the island’s life reinsurance sector following the financial difficulties at 777 Re, a Hamilton-based reinsurer linked to private equity firm 777 Partners.

In a report from The Financial Times, Burt acknowledged that while not all problems can be prevented, the focus should be on how issues are addressed.

Bermuda has notably become an important center for life insurers seeking to transfer longevity and investment risks. However, the recent troubles at 777 Re have sparked concerns over private equity involvement in the sector.

The reinsurer reportedly became entangled in investments tied to Josh Wander’s Miami-based firm, which includes assets ranging from football clubs to budget airlines.

Burt, who also serves as Bermuda’s finance minister, highlighted the role of the Bermuda Monetary Authority (BMA) in responding to the crisis at 777 Re. The BMA, which regulates the island’s financial sector, has taken steps to crack down on connected-party investments in response to the issues at the company.

Burt said Bermuda has “a very strong and robust regulatory system” and emphasized that international regulators should be reassured by the steps being taken to address concerns.

“It is accepted that we have a very strong and robust regulatory system, where we have made sure to tighten the rules… to make sure that our international regulators, who may have expressed these particular concerns, know that we are taking these matters seriously,” Burt said.

Bermuda’s financial system holds equivalent status to European and US solvency rules, meaning it is viewed as on par with those regulatory environments.

According to Burt, the BMA has been at the forefront of addressing concerns related to private equity ownership of insurers, engaging with international regulators on the matter. He pointed to a 2023 BMA paper outlining specific risks associated with private equity ownership and detailing the authority’s tightened rules around investments.

Burt also addressed broader concerns about the insurability of natural disasters. He said Bermuda’s insurance market would continue to play a key role in assessing and managing these risks, expressing optimism that market cycles will eventually ease pressure on consumers.

In July, 777 Partner’s continuing troubles reached a new development as its London basketball team reportedly faces potential closure due to a legal action supported by multiple creditors.

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The rapid rise of artificial intelligence (AI) is reshaping the landscape of the telecommunication, media, and technology industries. The launch of ChatGPT and other large language models has accelerated the use of AI applications.

However, the popularity of AI has led to greater energy requirements, especially for AI-focused data centres, which require significantly more power than traditional ones. At the same time, telecom companies are facing challenges in expanding networks to support AI, requiring significant investment in fibre optics and infrastructure.

“The increased energy utilisation that an AI-focused data centre requires is massive – as much as a small city,” said George Haitsch (pictured right), technology, media and telecommunications industry division leader at WTW.

“It’s significantly greater than typical data centres have been in the past. Major AI providers like Microsoft, Apple and Google need to quickly pivot to have greater capacity to support the utilisation of the tools that they’ve been rolling out.”

Energy and telecom infrastructure demand climbing

The issue has spurred renewed interest in nuclear energy as a viable power source, said Haitsch, with discussions now focusing on small mobile nuclear reactors to meet the immense energy needs of these facilities.

Experts have noted concerns that telecom companies may struggle to keep up amid growing demand for AI and machine learning technologies.

Firms are leveraging solutions like network slicing and edge computing to close this gap, but companies’ investment levels vary, according to Jose Mercado (pictured left), telecommunications subsector leader for North America and Latin America at WTW.

“Telecom companies are working diligently to address these issues, focusing on expanding their networks to support advanced technologies,” Mercado told Insurance Business. “This includes upgrading transport networks, enhancing fibre optic infrastructure, and integrating high-tech systems to meet growing demands.”

“There are existing solutions, but their effectiveness largely depends on each carrier’s business model,” Mercardo noted.

For example, he said, network slicing protocols allow carriers to segment their networks for different services and markets. Additionally, edge computing and cloud-based services help address capacity gaps.

Many carriers are also forming partnerships with major cloud providers to enhance their capabilities. Edge computing is particularly valuable for supporting the Internet of Things (IoT) as it provides reliable computing resources.

Risks and exposures as telecom firms expand to meet AI usage demands

This rapid expansion to meet the growing demand posed by AI involves substantial costs and raises various liabilities for telecom firms. Mercado stressed the importance of proper network management and investment to bridge gaps, which insurance can also play a role in.

“Liabilities are rapidly increasing for telecom companies, with cyber risk being a significant concern,” said Mercado. “As they expand into remote or hazardous areas, insurance can help manage these risks. Business interruption is also a concern, as it can greatly impact profits and earnings, making it especially important for capital-intensive telecom operations.”

Despite the challenges, there is a strong sense of enthusiasm and proactive investment in this sector.

“The industry is clearly excited about the opportunities AI presents,” said Haitsch. “It has been expanding its capacity aggressively, moving from 3G and 4G to 5G and now looking ahead to 6G.”

In the US, the Broadband Equity and Deployment (BEAD) program has introduced $42 billion in investment to expand high-speed internet in underserved areas. The initiative, which WTW is actively supporting with insurance and surety solutions, underscores the telecom industry and the government’s joint commitment to advancing communication infrastructure and bridging digital divides.

Haitsch highlighted the “growth opportunities” ahead, and the role of insurance in facilitating telecom investments.

“Insurance is a hedge, a risk financing tool, that can help smooth out the edges and ensure (telecom firms) can proceed with confidence in terms of the investment and the construction that’s going to be required,” said Haitsch. “We’re excited to be a partner to the telecommunications industry, and we’re seeing a lot of interaction and excitement around managing the challenges.”

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Gallagher Specialty has released its latest market update, focusing on global macroeconomic challenges and their effects on risks faced by those trading with or investing in emerging markets.

The report also provides an overview of the structured credit and political risk (SCPR) insurance market, noting changes in capacity and key market developments.

The report highlights geopolitical tensions, including ongoing conflicts in Ukraine and the Middle East, which continue to impact global markets. Gallagher Specialty points to the upcoming US election in November as a potential turning point, with the outcome expected to have significant implications for Ukraine, trade with China, and Western diplomacy in Africa.

The SCPR insurance market remains crucial in supporting trade and investment amid this volatile environment.

SCPR across emerging markets

In the Democratic Republic of the Congo (DRC), the escalating conflict in the east of the country is increasing risks for investors, particularly in the mining sector. Gallagher Specialty reports that the involvement of regional forces is disrupting mining operations and supply routes, which could impact investor confidence and government revenue.

Despite the instability, global demand for critical minerals is expected to sustain investor interest in the DRC.

Kenya is also facing economic pressures, exacerbated by extreme weather and supply chain disruptions. According to Gallagher Specialty, the country’s government has limited fiscal space to offer reconstruction funding, which has led to increased reliance on external support.

While Kenya’s recent Eurobond buyback has alleviated immediate concerns about sovereign default, debt sustainability remains a longer-term challenge.

In Gabon, political stability has improved since the August 2023 coup, with the military authorities committed to a democratic transition by 2025. Gallagher Specialty notes that while this transition has led to the resumption of external budgetary support, any delays could negatively impact investor confidence and lead to social unrest.

The government’s efforts to reduce external debt have also been noted as a positive step towards improving the country’s economic outlook.

Algeria is expected to hold presidential elections in September 2024, with President Abdelmajid Tebboune likely to remain in power. Gallagher Specialty highlights the country’s ongoing economic challenges, including inflation and unemployment, which may continue to affect foreign investment.

Algeria’s reliance on hydrocarbons remains a key vulnerability, particularly amid restricted oil production.

In Ghana, the approach of the December 2024 general election is raising the risk of civil unrest and political violence. Gallagher Specialty reports that confrontations between rival party supporters are likely as the election nears, and public distrust in electoral institutions is growing.

However, recent debt restructuring agreements and renewed IMF support have improved Ghana’s fiscal stability and debt sustainability outlook.

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The global construction insurance market is seeing a notable increase in capacity levels, approaching those seen in 2019 during the last soft market cycle, according to a report from WTW.

This upward trend in capacity is forecasted to continue through the second half of 2024 and into 2025, driven by insurers’ focus on maximising local capacity and pressure from new market entrants seeking to gain a foothold.

Key drivers of the market include growth in infrastructure projects, pricing stability, and opportunities emerging from coverage gaps.

Global construction insurance sector growth

The report highlighted sector growth in construction, particularly in energy, utilities, and infrastructure projects, which are expected to increase by 7.8% and 5.1%, respectively, in 2024.

A significant rise in manufacturing investments is also anticipated, especially in semiconductor plants, gigafactories, and data centres across North America, Latin America, and Europe.

Global construction insurance pricing

Despite inflation and higher interest rates, pricing in most regions and lines of business is expected to remain stable due to increased competition and new market entrants.

However, in regions prone to natural disasters – such as the Gulf of Mexico, the US East Coast, and parts of Latin America and Asia – pricing and capacity are still being carefully managed due to the elevated risk.

Emerging opportunities for the global construction insurance market

The soft market is also presenting opportunities for insurers to address coverage gaps, such as complex construction risks and professional liability coverage in large infrastructure projects, particularly in Europe, Asia, Australia, and New Zealand.

In the US, new opportunities may arise in auto liability and lead umbrella casualty lines.

Impacts of politics on global construction insurance market

Political uncertainty, particularly elections, has led to delays in major investment decisions in the construction sector.

However, WTW anticipates that large infrastructure projects, especially in the UK and European Union, will gain momentum heading into 2025.

Tech innovation in global construction insurance market

Technological innovation is another area driving growth.

The construction industry is increasingly investing in technology solutions, such as artificial intelligence (AI), robotics, and drones, to enhance productivity and address labour shortages.

Global construction insurance market outlook

Iain Drennan, head of construction for Australia and New Zealand at WTW, said all indicators point to a positive market outlook.

“The resilience of the construction insurance market continues to impress in the face of persistent economic headwinds, and contractors are finding innovative ways to manage risk,” he said.

Michael Bruch, global head of risk advisory services at Allianz Commercial, said the use of mass timber in construction has been expanding, particularly in high-rise buildings.

The material offers environmental benefits by reducing the industry’s carbon footprint, but it also introduces new risks, including fire hazards and vulnerabilities to natural disasters.

Bruch highlighted the growing use of mass timber in Europe, Asia, and North America, emphasising the importance of fire-resistant design and careful risk management when incorporating this material into large-scale projects.

Aon has released its “Ultimate Guide to the Reinsurance Renewal – September 2024” report, highlighting the contrast between the strong financial results of the reinsurance industry and the challenges faced by insurers amid rising losses and more complex risks.

The report emphasizes the industry’s potential for growth, noting that the global insurance premium to gross domestic product (GDP) ratio has remained around 1.8% since 2010. This is despite an increase in exposures and unmet client demand, signaling potential areas for expansion.

In the first half of 2024, natural catastrophe re/insurance payouts totaled $58 billion, significantly higher than the decadal average of $47 billion. Despite these payouts, reinsurers recorded an average return on equity (ROE) of 17.6% during the same period.

Aon’s analysis of 100 global re/insurers found that some of the largest players reported ROEs exceeding 25%, outperforming many primary insurers and surpassing their own cost of capital. This strong financial performance could drive further growth.

However, the report points to uneven profitability across the insurance value chain. Higher retentions in insurers’ catastrophe programs have limited capacity for frequency covers, leading to an unequal distribution of underwriting profits.

Global reinsurer capital reached a record $695 billion as of June 30, 2024, an increase of $25 billion from the end of 2023. This rise was mainly driven by retained earnings, increased inflows into the catastrophe bond market, and recovering asset values.

A survey of re/insurers showed average annualized investment yields of 3.8% in the first half of 2024, up from 3.1% in the previous year.

Reinsurance pricing has begun to decrease gradually in 2024, partly due to a rise in alternative capital, which reached $110 billion. Reinsurers have also granted rate reductions for top-performing risks. Aon predicts that competition in pricing will increase in 2025, giving insurers more flexibility in terms of capacity and coverage.

Rupert Moore (pictured above), UK CEO of Reinsurance Solutions for Aon, commented that the reinsurance market must take a more proactive role in managing frequency losses and earnings volatility. If reinsurers continue to avoid risk, insurers may follow suit, shrinking the industry’s relevance.

Moore stated that Aon’s role is to bring clarity and confidence to risk management, helping to shape better decisions and highlight opportunities for profitable growth.

The report also highlights the volatility experienced by re/insurers in 2024, driven by diverse events such as earthquakes and airline losses in Japan, the Baltimore bridge collapse in the US, severe flooding in Dubai, and a global computer outage at CrowdStrike.

According to Moore, these events underline recurring themes for the industry, including the increasing interconnectivity of risks, loss volatility, and the growing gap between insured and economic losses.

The industry must either adapt to the opportunities presented by shifting risks or risk seeing a greater portion of that risk absorbed by the public sector and capital markets.

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Digital platform CatX has announced the appointment of Jon Wood as the head of origination.

CatX co-founder and CTO Lucas Schneider said that Wood’s more than two decades of experience will be helpful to the firm’s operations.

“With over 20 years in the industry, Jon will help us to secure attractive opportunities for our funds and accelerate the flow of alternative capital into insurance,” said Schneider.

Benedict Altier, co-founder and CEO of CatX said Wood’s appointment coincides with the firm facing interest from new capital sources.

“Jon’s leadership will be key in driving our strategy and helping us to better connect risk with new capital,” said Altier.

Who is Jon Wood?

Wood has more than 20 years of experience within the industry, with his most recent role being in Aon’s retrocession leadership team where he had helped in shaping and executing the company’s global strategy as well as drive high-value transactions throughout the international reinsurance market.

Before Aon, Wood also had senior positions in various firms like Willis Re and Guy Carpenter. He has experience when it comes to client executive and production roles where he has provided his expertise in traditional and alternative risk transfer solutions.

In his new role, Wood will be working with the reinsurance, retrocession, and global corporate broking teams of the firm in order to best leverage the capital that is available through the platform for their clients.

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Small- and medium-sized businesses (SMBs) represented about 45% of the cyber market exposure, a study by Guy Carpenter found.

In its latest cyber research report entitled “Small Businesses and the New Frontier of Cyber Catastrophe Modeling,” which was from its Cyber Center of Excellence, it was found that the number of SMBs recorded for cyber market exposure was a notable increase of 45% over the last five years.

The study said that the increased share of SMBs in the cyber insurance market meant that the accurate quantification of their aggregation potential was important to the capacity deployment as well as risk management.

In contrast to the overall SMB segment, the report found that those with cyber insurance coverage had strong security postures. This meant that incorporating the security posture gap into cyber modeling analysis is vital to accurately quantify the appropriate aggregation risk for the portfolio.

However, because there is a notable lack in credible data, cyber catastrophe (CAT) models struggled in reflecting the disparities of cybersecurity postures when it comes to SMBs.

As the adjustment of CAT model outputs in order to reflect the impacts of fundamental security controls leads to a more accurate and precise differentiation of SMB risk, model adjustment serves as an important step when it comes to establishing a view of modeled loss potential, which can support the growth in a market segment that is set for a continued expansion.

The “Small Businesses and the New Frontier of Cyber Catastrophe Modeling” report was developed by cyber insurance provider At-Bay and discussed the impact of cyber on SMBs, suggesting actionable solutions when it comes to modeling, data, and impact mitigation.

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