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Reinsurers look ahead to uncertain future

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Reinsurers look ahead to uncertain future

DENVER – The reinsurance industry faces increased uncertainty over inflation, cyber liability and other issues heading into 2022, according to a panel of experts. 

More uncertainty in the world in general is leading to some insurers pulling back capacity and questions over how the industry’s capital should be deployed, they say.

Inflation, which has risen in recent months, is affecting property and casualty coverage, said Chirag Shah, New York-based executive vice president and head of casualty for Willis Re, a unit of Willis Towers Watson PLC.

“We’ve been dealing with inflation from a loss trend perspective for the last decade, and the issue now is this new level of economic inflation,” he said during a session of the American Property Casualty Insurance Association annual meeting in Denver on Monday.

The increase in inflation will lead to more uncertainty for the sector and insurers will have to examine its effect on their business, Mr. Shah said. 

Property insurers have been hit by increased prices for materials, but it remains unclear whether the higher costs will be temporary or longer-lasting, said Alex van Dijk, Morristown, New Jersey-based president – U.S. branches at Guy Carpenter & Co. LLC.

Liability insurers have been affected by social inflation, the term used to describe higher court awards and settlements, he said.

“There’s been a lot of discussion and debate on social inflation and how we are keeping up with loss costs,” Mr. van Dijk said. 

The wider issue of uncertainty in the world in general is also affecting the reinsurance market, panelists said.

There is a “significantly increased level of uncertainty. The world continues to get riskier,” said Marcus Winter, Princeton, New Jersey-based president and CEO, reinsurance division, for Munich Re US, a unit of Munich Reinsurance Co.

“Insurers pull back amid uncertainty,” said Joe Monaghan, global growth leader for Aon PLC’s reinsurance business and CEO for Aon’s public sector partnership. The uncertainty raises questions over how to deploy capital based on increasingly uncertain events.

An area of particular concern for reinsurers is cyber coverage.

“Cyber certainly is a big topic for us. It’s difficult in cyber really to model what is out there,” said Mr. Winter.

Cyber coverage is near or at the top of priorities for many cedents, said Mr. Shah of Willis Re.

Ransomware attacks, which have seen a sharp rise over the past two years, raise policy questions for businesses, he said.

“There is a moral hazard associated with the whole product, in my opinion, which needs to be resolved at a level beyond just the insurance community, to try to create some consistency on how we going to approach the ransomware issue,” Mr. Shah said.