The reinsurance company Swiss Re anticipates an increasing demand for reinsurance protection in the coming years. Due to the growing risks from natural disasters, demand for coverage in property and specialty lines is expected to rise, according to a statement from the company on Monday.

Factors cited include rising property values, urbanization, and inflation-driven higher repair costs. Particularly in regions at increasing risk of natural disasters, demand is likely to continue growing.

According to the Swiss Re Institute, global insured losses from natural disasters in 2023 exceeded $100 billion. This marks the fourth consecutive year that this threshold has been surpassed. The trend is continuing this year as well, with the first half of 2024 already seeing $60 billion in losses, which is 62 percent above the ten-year average.

Growing Demand in Certain Segments

«Given the increased risks of natural disasters, economic uncertainty, and geopolitical instability, reinsurance is the natural choice for primary insurers to protect themselves from excessive losses,» says Urs Baertschi, CEO of Property & Casualty Reinsurance at Swiss Re.

Growing demand is also seen in engineering reinsurance for construction and renewable energy projects, as well as in the cyber reinsurance market.

Modelling and Capital Management

Insurers must take measures to manage the risk landscape. This requires improved modeling and effective data flow to ensure risk-adequate pricing. For primary insurers, capital management and volatility management are also becoming increasingly important.

«Social Inflation»

In a separate statement Swiss Re pointed to rising costs due to higher compensation awards in the U.S. This so-called «social inflation» is increasingly worrying the industry. Over the past decade, U.S. liability claims have grown faster than economic inflation. In 2023 alone, U.S. courts awarded damages of more than $100 million in 27 cases.

«We are seeing a continuous increase in aggressive litigation practices, which is particularly problematic for liability insurance,» says Gianfranco Lot, Chief Underwriting Officer of P&C. While this is primarily a U.S. phenomenon, it may spread to other countries with similar common-law systems, such as the U.K., Australia, and Canada.

Price Increases Flattening

Other major reinsurers also weighed in at the «Rendez-Vous de Septembre» in Monte Carlo. Market leader Munich Re expects continued high demand for reinsurance despite the significant premium increases. However, price increases will not continue at the same pace.

Between 2024 and 2026, premiums in property and casualty reinsurance are expected to grow by 2 to 3 percent annually on average worldwide, according to Munich Re board member Thomas Blunck. Currently, the market is «in a reasonable balance». In the past three years, premium income had grown by around 4 percent annually.

At Hannover Rück, the world’s third-largest reinsurer, a stagnation in pricing is expected in 2025 following significant price increases in recent years. Prices and conditions in property and casualty reinsurance have further improved in some areas this year, while stabilizing at 2023 levels in others. In some primary insurance markets, slight price reductions are now seen.

Primary Insurers Taking on More Risk

Ahead of the meeting, rating agencies Standard & Poor’s (S&P) and Moody’s provided a positive outlook for reinsurers' profits. After years of steep price increases, many primary insurers have taken on more risk. «This transfer of more frequent losses to primary insurers has significantly boosted reinsurers’ profits,» Moody’s noted. Small and medium-sized loss events have accounted for a large share of total damages in recent years and increasingly burdened primary insurers in 2023. As a result, reinsurers earned their cost of capital for the first time in several years.

The demand from primary insureres remains strong, even though prices in the business have peaked this year, according to S&P.

The four-day industry event, attended by around 3,000 participants, has been held annually in Monaco on the Côte d’Azur since 1957.