In a world that is both highly interconnected and increasingly fragmented, the reinsurance market has a vital role to play in providing reliable and innovative solutions to the risks and challenges its clients face. Dialogue and communication across the market and with key stakeholders will be the driving force behind this effort.
As we head into the reinsurance renewals season, increasing geopolitical and economic tensions, coupled with the interconnected nature of many of the biggest risks facing societies and companies, will be top of mind for cedants and reinsurers alike.
I recently attended a meeting of the Global Reinsurance Forum, which gathered CEOs of global reinsurers in conjunction with the Geneva Association meetings in Kyoto. A key discussion topic was the growing fragmentation and, in some instances, polarisation across the world and the challenges this presents for societies, economies, business – and the insurers and reinsurers that protect them.
Recent geopolitical tensions have highlighted the increasing polarisation in certain areas of the world. And at a more local level, the European Parliament elections and domestic elections too have highlighted a shift further to the more extreme ends of the political spectrum.
This tension creates challenges for businesses operating within those markets and overseas and presents new risks for the insurance and reinsurance markets to consider.
Economic dislocation
While no one is able to predict the medium to long-term path nations may take, it is clear in the short term that there is a significant desynchronisation happening between various domestic economies.
And while this dislocation may not seem huge at first glance, there is a compound effect that is creating larger disparities. Take, for example, the difference in the speed of the economic recovery after the COVID-19 pandemic between the United States and Europe.
While, at first glance, it may appear that the difference in percentage points in GDP between the two is only a few, when taking into account the fact that the United States also recovered more quickly from the 2001 dot.com crash and the 2007/2008 sub-prime financial crisis, the longer-term difference becomes more stark.
Interconnected risks
Against the backdrop of this increasing geopolitical and economic tension and fragmentation, the risks faced by companies are viewed as becoming increasingly interconnected, as highlighted in AXA’s latest . We’ve seen in recent months how geopolitical shocks, pandemics or climate-related risks can cause supply-chain issues, for example, or how a cyber outage can ground flights and result in business interruption.
There are interdependencies here too in tackling these issues. Addressing climate change and enabling the transition to a lower carbon economy requires collaboration between all stakeholders, public and private, across the globe.
International cooperation
Yet despite the interconnectedness of today’s world, increased polarisation in some domestic markets is creating barriers to the trade of goods, the provision of services and – crucially for the reinsurance market – how solutions can be offered to protect businesses on a global basis.
Reinsurers have a responsibility and a role to play in ensuring an international order to facilitate trade and to protect businesses. We do this by strictly enforcing and complying with sanctions, for example.
Reinsurers recognise the need to adhere to the local and international regulatory frameworks that safeguard our position as firmly-established, reliable long-term partners to provide protection where and when it is needed.
Despites these challenges, innovation in individual markets can provide opportunities. For example, during the Kyoto meeting participants were joined by Mr. Shigeru Ariizumi, Vice-Minister for International Affairs at Japan’s Financial Services Agency. He shared his agenda to promote Japan as a leading asset management centre. This was a compelling plan demonstrating that an environment conducive to business and attractive for capital is the best way to foster both innovation and protection.
The reinsurance response
In working with clients to respond to today’s challenges, international reinsurers need to be innovative, adaptable and reliable. We need to be sure that we are in tune with our clients and that the solutions and products we design meet their – often changing – needs.
Reinsurers also need to be where the action happens and where our clients need us. That means having a global footprint and an understanding of the nuances of local markets.
Reinsurance coverage provides expert help that can be relied upon in times of crisis and it gives peace of mind for the longer term.
In testing economic and geopolitical times, with myriad interconnected risks, cedants are looking for reinsurance partners on whom they can rely. That means they are looking for reinsurance partners with strong balance sheets that are keen to build and maintain relationships.
Looking forward
Discussions at the Kyoto meeting underlined the importance of innovation and flexibility to ensure that reinsurance remains relevant and effective for clients in a world that often has conflicting trends and developments.
Our industry needs to continue to exchange views and insight on how to navigate the challenges and opportunities of the current and future market environment and reaffirm our commitment to providing long-term protection and value to our clients and stakeholders.
As we head into the conference and renewal season, we need to keep in mind the dynamic risk landscape our clients are facing. Robust cross-industry dialogue about the challenges and opportunities for companies, their insurers and their reinsurers, will help us all to ensure we are fit for the future.
