GR Main Edition 2022: Disrupting the Oligopoly

Has it really been three years since the last Rendez-Vous? The atmosphere in Monte Carlo during the famous September conference can have an air of Groundhog Day about it.

Many of the same faces, the melee every half hour in the hotel lobbies, the heat (or torrential rain) and that unforgettable backdrop. Even the discussion topics don’t change that much.

But will 2022 feel different? We have been through a global pandemic, seen the geopolitical landscape deteriorate, experienced major losses and have the looming (and rather unfamiliar) challenge of inflation.

As reinsurance market participants once again meet in the Principality, will discussions adopt a different tone than they did over the past decade, or the one before that?

I suspect they won’t. For the simple reason that ours is an industry that is in the business of catastrophic risk. Global shocks are unsettling, but this is what we are here for.

Stabilising economies, taking on cedants’ peak risks so societies can get back on their feet when the worst happens, whether that is a major war, natural catastrophe, cyber attack or something else that blindsides us.

The war in Ukraine, soaring inflation (with the UK entering double digits for the first time in 40 years), volatile investment markets and effects of climate change were just some of the issues highlighted in the latest set of half year results.

Inflation and claims inflation is a growing concern, with AM Best predicting reinsurance capital will shrink this year as we head for recession. 

If they have not already been notified, re/insurers are bracing (and reserving) for losses from extreme weather (droughts, wildfires and floods), grounded aircraft in Russia, disrupted supply chains, spillover cyber attacks, political unrest, mark to market losses, windstorm season - the list goes on.

Offsetting some of this is continued upwards pressure on rates on line, with the mid-year renewals suggesting 2022 will be another bullish year for underwriting profitability (in the absence of major losses in the second half of the year).

And, with central banks adjusting interest rates upwards, at some point investment returns should stabilise and improve.

The current headwinds are undoubtedly challenging, but they are not insurmountable.

A number of reinsurers pulled back from property catastrophe risk during the last renewal - prompting a capacity crunch in the Florida market - but buffering balance sheets should H2 2022 prove calamitous. And it is an opportunity for ILS markets to step in.

So is it back to business-as-usual as brokers, cedants, reinsurers and ILS markets descend on the Principality. Not quite. The elephant in the casino is systemic risk. It’s what has always held the industry back.

But we cannot hide from unknowns. In an ever-changing, increasingly digital, interconnected and volatile world, we have to innovate and come up with solutions (involving government backstops, following and capital markets where suitable).

We have the data, analytics and talent to embrace a certain level of uncertainty as the risk landscape evolves. To make solid, risk-based decisions regardless of whether or not the historical claims data exists.

If we don’t, the industry could miss these opportunities, with cyber currently offering something of a cautionary tale.

For an industry that thrives on relationships - particularly within the European market - the ability to meet face-to-face and devise meaningful solutions is what keeps us relevant.

As David Howden explains in our exclusive interview, a bit of disruption (or kick up the backside) can be a good thing for everyone.

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