The report’s findings, with biennial research by PwC and financial services think tank CSFI, track the opinions of global (re)insurance leaders about what they see as being the most significant risks facing the sector over the next two to three years.
The report stated that, with the increasing number of extreme-weather events and subsequent losses, reinsurers are bearing the brunt of the cost of catastrophe claims.
According to survey respondents, concerns around climate change include questions over the insurability of some geographical areas and types of risk, as well as a potentially disorderly transition to net-zero due to uncertainty or insufficient action.
PwC outlined further wide-ranging impacts for reinsurers resulting from the risk of climate change, including pricing, legal liabilities, changing consumer behaviour and the challenge which the transition to net-zero poses to reinsurers’ own operations.
Climate change, cybercrime, technology, human talent and regulation were identified as being the top five risks facing reinsurers.
The risk of regulation dropped from second spot to fifth, replaced by cybercrime risk, with technology taking the third spot.
New risks for 2023 were artificial intelligence and de-globalisation.
Anil Vasagiri, head of property solutions at Swiss Re Reinsurance Solutions, said: "Natural catastrophe risk assessment that is traditionally rooted in the past will be highly inadequate to measure or quantify the likely impact of climate change.”
“To accurately price impact on physical risk, the (re)insurance industry needs to incorporate risk trends in a forward-looking manner and make sure the impacts of climate change are fully captured in their risk models.”
The second biggest risk for reinsurers, and the biggest risk among all insurance sectors, is cybercrime. Survey respondents expressed concerns that a successful cyber-attack could jeopardise business continuity, and that the theft of sensitive data could have disastrous reputational consequences.
Andy Moore, PwC UK partner and London market leader, said of the results: "Although categories are helpful in identifying trends, the risks facing our industry are becoming increasingly intertwined.”
“AI has the potential to make cybercrime more sophisticated and complex, climate change will lead to regulatory upheaval, and the central role technology now plays means talent shortages appear more stark than ever.”
“Arguably the biggest risk we all face is not taking action but, with its experience in assessing risks, scenario planning and analysing ever-changing data, the reinsurance industry should have confidence in its ability to innovate and overcome.”
The report noted that reinsurers, as compared with their counterparts in other areas of the insurance market, showed considerably lower-than-average concern about their sector’s ability to achieve cost reductions to remain competitive, and its ability to manage change.
On the other hand, reinsurance was the only sector to place de-globalisation in its top 10 risks, and was also more concerned about availability of capital, and credit risk, the report said, reflecting “some of the challenges seen in the market over the last year and the recent implications of some alternative capital structures”.
The survey was conducted between May and August and is based on 589 responses from 39 territories, with 41 respondents from the reinsurance sector.
