International Property
Key developments in 2022
In our last Annual Insurance Review we predicted insurers' continued strive towards achieving a low carbon economy and a focus on insurance offerings linked to renewables. Additionally, we noted that the appetite for catastrophe bonds and other insurance linked securities ('ILS') would remain steady in 2022.
As anticipated, insurers have continued to push for innovative solutions to tackle the effects of global warming. Topics surrounding sustainable insurance were included in the agenda at COP27. During the conference, the Global Federation of Insurance Associations called on parties to prioritise resilience-building against climate change and future natural disasters. Amongst other things, the Insurance Adaptation Acceleration Campaign was announced as a result of the COP27 discussions. The initiative seeks to mobilise some 3,000 companies, making up 50% of the insurance market, by the time of COP28 and is co-sponsored by Marsh McLennan which issued a detailed report about climate risk reduction and adaptation in the insurance sector.
Climate change has continued to lead to extreme weather events with losses to international property amounting to roughly $65 billion in the first half of 2022, according to Munich Re. This statistic includes heatwaves, floods, earthquakes and storms, though the overall losses for 2022 are estimated to be much higher. Notably, Gallagher Re reports that the damages resulting from Florida's Hurricane Ian alone may exceed $100 billion. In light of these damages, heavy losses may be expected for catastrophe bond holders alongside a decrease in ILS investor appetite. However, elsewhere, Swiss Re also reports that even in times of volatility, the catastrophe bond and ILS market has once again demonstrated its resilience, indicating that it is a space to watch.
What to look out for in 2023
Expect more of the same in 2023. Insurers will continue to progress towards more sustainable products to tackle the impacts of climate change and help prevent the potential increase in natural disasters. Managing the risks associated with these changes will be key for insurers in the transition into more sustainable sources.
Numerous insurance companies have set goals for themselves in respect of achieving net zero emissions. In order to hit these ambitious targets, insurers will be introducing new green products into their underwriting portfolios and will simultaneously phase out insurance covering fossil fuel. The Boston Consulting Group estimates that green assets will comprise 66% of the property and casualty market by 2050, in the UK alone. This shift will also be visible on a global scale. Setting an example, Marsh, AIG and Liberty Specialty Markets have launched the world's first insurance for hydrogen projects in August 2022, which is expected to kick off in 2023.
The rise in extreme weather events and natural disasters is also to be anticipated. Climate change disasters will have a strong impact especially on the reinsurance sector with catastrophe and other types of reinsurance expected to soar in the years to come. The pressure on reinsurers will translate into an increase in premiums, as exemplified by Swiss Re implementing a significant 12% rise the premiums for its property and casualty lines. We predict more adaptive measures of this type across the global insurance industry in 2023 and beyond.
Written by Karolina Lewicki.
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