Read Full Magazine Here. A recent study conducted by Fitch Ratings suggests that the increase in reinsurance rates for natural catastrophe risks is likely to slow down in the upcoming January 2024 renewals.
The rating agency is also expecting to see an improvement in market profitability, with higher underwriting margins and reinsurer profits.
The report also projects that insured losses caused by natural disasters will exceed 100 billion USD in 2023. Yet, the impact on reinsurers will be much lower than in 2022.
Increasing trade volumes, the appreciation of the US dollar, growing offshore activity and rising ship values have underpinned the marine transport insurance.
U.S.-based Fitch Ratings Inc. expects reinsurance property market hardening to continue into the January 2024 renewals and beyond, however, price hikes are likely to be more moderate when compared with the 2023 year as rate adequacy has generally been reached.
Nasco Insurance Group was founded in 1961 as an insurer broker based in Lebanon. Today, in addition to Lebanon, the Group has a presence in France, the United Arab Emirates, Kingdom of Saudi Arabia, Qatar, Oman, Türkiye, Nigeria, Egypt, Tunisia S. Korea, Kenya and France.
Joe Azar, Chief Executive Officer of NASCO Re (the reinsurance broking arm of Nasco Insurance Group) joined NASCO France in 1992 as Director for Treaty and became Chief operating officer in 2013 and member of the NASCO Insurance Group executive board.
Joe Azar sits down with BUSINESS LIFE reporter to talk about his new plans for the year 2024. In this moving conversation, Joe discusses the hardening trend, cyber security and climate change and the global economy.
BL: How can we insure against growing cyber and climate threats?
Joe Azar: We insure against growing cyber and climate threats as follows:
1.1 CYBER
Global Cyber Market is estimated at total premium volume of $20 bn. Global Cyber crime costs projected at 11 trillion in 2023 are expected to reach 24 trillion in 2027.
Cyber attacks would be accelerated by technology and exposure increased due to geopolitical conflicts.
Ransomware is the key loss driver with a potential cost higher than 200bn. Data destruction rather than encryption and extortion under the threat of data theft represent alarming trends
Number of experts working in cybersecurity field worldwide, estimated at 5 million, reflects a shortage in talents. The workforce needed to bridge such gap is estimated at more than 3 million.
Cyber insurers have to build the adequate expertise including security standards, underwriting guidelines, risk management process, modelling and claims handling networks. They also need to establish, in all transparency, limits of insurability and boundaries of coverage vide a detailed reference to exposures covered and those excluded. It is also crucial to control accumulation and identify systemic and target risks
Many Leading insurers are committed to facilitate and develop a sustainable Market by avoiding uninsurable risks and adapting conditions to the rapidly changing risk landscape . Major insurers include AIG Chubb, Hiscox, Axa , Travellers , Zurich and Beazley.
1.2 Climate Threats
Insurers continue to offer insurance protection against climate related risks and losses. However, the volatility and escalation in the intensity and cost of cat events would drive premiums needed towards unaffordable levels thus leading many players to discontinue coverage.
Policies and Measures under way, recommended by the Cop annual meetings, to mitigate climate change and reduce carbon footprint would permit insurers to reinforce resilience strategies. Insurers are also called to play a key role to support transition to a more sustainable future by acting as responsible investors and integrating environmental aspects in their investment decisions.
Cat models are being adapted to follow proactive approach and use predictive modeling tools in projecting the impact of climate change upon insurers exposures and conducting necessary pricing corrections.
Reinsurance products will need also to be re-engineered in the way to warrant disciplined underwriting approach at primary level and continuity of reinsurance and /or retro covers. he recent move towards adopting parametric covers in our region linked to specific events and predefined trigger confirm access to reinsurance capacity is being reshaped.
BL: What are your views on the global marine transport insurance market in 2024?
Joe Azar: The global marine transport insurance market is linked to worldwide shipping and commerce offer and demand in addition to geopolitics. Any amendment in trading routes and/or the volume of total transported goods, may have an influence on the prices for Marine insurance.
Incidents involving cargo damage such as piracy, natural disasters (storms and tsunamis), and accidents are among the many dangers that the marine transportation sector would see increasing in 2024. In response to these hazards, the insurance market would need to provide specific covers to protect cargo owners, vessel owners, and other relevant parties.
Change in trade regulation pertaining to environmental protection and maritime safety has also a major impact on the marine insurance industry – as Insurers would need to adapt so they comply with constantly changing regulations.
Marine insurance policies have been amended to offer insurers a protection in case of pandemic, following the COVID-19 which caused significant disruptions to supply chains.
Due to inflation, the total cargo values will translate into increase in the potential of accumulation for 2024.
The implementation of technological advancements in Marine shipping including enhanced navigation systems and autonomous vessels could potentially influence the scope of risks and coverages that are provided under marine insurance policies.
Competitive marine insurance will increase in the future due to increased capacity. Competition can influence premium rates and policy terms.
It is worth indicating global Marine insurance Market is estimated at 35 Bn comprising 60% Cargo and 20% Hull, with the dominant segment written in Europe generating around 50% followed by Asia accounting for 30%.
BL: Fitch Ratings Inc. expects reinsurance property market hardening to continue into the January 2024 renewals and beyond, do you think that the price hikes are likely to be more moderate when compared with the 2023 year? Why?
Joe Azar: Following the increase in rates experienced during 2023 , we can expect the pressure on prices to soften in 2024 . However, there are signs the road ahead will continue to witness a disciplined pricing environment . This will be coupled with a margin of flexibility to privilege moderate hikes in rates when warranted by loss performance and Market dynamics .
In this context , we expect the trend of improvement in prices to persist during this renewal season , particularly for Cat exposed business . The level of increases will be influenced by the capacity available and the risk appetite of major providers, which could vary from one territory to the other . Other factors include the movement of the underlying prices and definitely the historical loss patterns .
In our region , the February 2023 Earthquake in Turkey with insured losses estimated at 6bn confirm the increase in loss trends . This will translate into tighter terms and significant price corrections . Insurers are now exposed to severe cat events , massive losses from secondary perils and definitely unprecedented volatility due to climate change in addition to the inflation pressure on claim costs . Lead reinsurers are pushing upwards the retention levels and reshaping reinsurance structure to provide capital protection rather than earnings. This implies also a review of pricing to ensure profitability of Insurers retained account.
BL: What is the outlook for reinsurance in 2024?
Joe Azar: Global economic conditions indicate a projection for 2024 real GDP growth in the region of 2,6 per cent. China , struggling with domestic challenges , will see a slowing growth not exceeding 4,5 per cent against 1 per cent only for the US . In Europe, few countries will go into recession, and the overall trend is stagnation .
Lower inflation and interest rates should support the return to higher growth but the uncertainties on the geopolitical front will drive the economic outlook
Looking at the insurance Market , global premium forecast shows an average annual real growth of 2,2 per cent supported by the reinsurance Market hardening . China and Emerging Markets represent the dominant segment of the growth reaching an average of 6 per cent.
Reinsurance industry capital reached $ 709 bn including 99bn of alternative risk capital in the first half of 2023 . This level of capital reflects 13 per cent growth. Investors are expected to inject more capital during 2024 , given the profitability boosted by improved prices and higher investment yields translating into stronger ROE.
Non-life Reinsurance premiums increased by around 7 per cent during first half 2023 . Growth is expected to persist in 2024 at reduced pace due to slowing of rate increases, and tendency of reinsurers to focus on the protection of large events only.
BL: What is the future of the reinsurance market? Is reinsurance a growing industry?
Joe Azar: The developing economies , the change in Demographics , the insurance gap and the rising bill for Cat events , Cyber losses and political risks are all promising factors and /or opportunities for significant expansion in the reinsurance Market.
Europe is a key hub of the Global Reins industry with many well-established Cos . These hold a sizeable Market share and play a leading role in establishing pricing trends and preserving stability of Markets .
Alternative risk capital now representing close to 20 percent of industry capital expected to continue developing and to start covering new lines of business without strict focus on Property cat .
By investing in expertise to sophisticate models and find innovative solutions for complex coverage , the Big boys among reinsurers are widening the scope of insurable risks and consequently contributing to the growth of the reinsurance industry . This could enlarge the gap between top reinsurers and the follow Markets
The adoption of technology to launch automated placement platforms is expected to gain ground supported by Insurtech Cos. This will ease distribution and reduce cost for both acquisition and administration . Reinsurers and intermediaries will be also focusing on services to enhance the understanding of exposures and optimize processes and business models . Reinsurance value chain will need to defend advice and technical assistance on top of price competitiveness and claims efficiency .
A number of analysts project the reinsurance market size to be in the range of 1,4 to 1,5 bn in 2033.
BL: What were the biggest challenges for insurance companies in 2023? How market leaders are solving them?
Joe Azar: The key challenge of insurers is unpredictability with the main concerns being on the technological and environmental fronts .
Managing and protecting Policyholders Data is a must to avoid operational and reputational risks. Cyber crime being on the rise , insurers need to enhance awareness and move towards tightening security.
Using the magic of Digital revolution and the power of technologies such as big Data, blockchain , AI and machine learning will allow insurers to transform and personalise their products and services . With customer centric offering , insurers will improve Clients’ experience and persistency ratio.
Climate change is a critical issue to insurers . Property cat losses expected to go up 60 pct by 2040 due to more severe weather conditions . The surge in frequency and severity of Heavy rain , floods, hurricanes , wildfires and drought is impacting heavily economies, infrastructure and more importantly people’s health . Insurers should adapt their products and pricing to the new loss patterns and also contribute actively to encouraging preventive measures .
Regulatory environment is also becoming increasingly complex and requires investment into resources talents and tools to ensure policies and processes are fully compliant.
BL: What is the fastest growing insurance product?
Joe Azar: Health insurance represents more than 25 pct of global ins premiums and continues to grow fast driven by the North American Market. Estimated growth is 4 to 5 pct .
Motor is the dominant segment of Property and Casualty lines of business and accounts for close to 15 per cent of global premiums . Motor growth has slowed down in the recent years and is expanding at lower pace than other P&C lines.
Specialty Insurance valued at 100 bn of global premiums covers many lines of business . This includes MAT generating the largest volume followed by Political Risks & Credit ranking second in addition to Art , Contingency , Cyber, D&O , E&O , Livestock and other lines . All these lines are gaining popularity and witnessing a very high demand permitting growth to accelerate and reach a CAGR of 10 pct . Art insurance is today the fastest growing segment , and Cyber is the line with the highest potential of growth .
Empowering Distribution is essential in building growth strategies . Anticipating customer needs and managing Client expectations is key to unlock growth . Process behind the insurance sales should be also simplified with the view of facilitating the job of brokers , Agents and / or advisors at the heart of distribution role .
BL: What are your plans for 2024? What about your new expansion plans and What are the biggest challenges for Nasco Re in 2024?
Joe Azar: Nasco Re is strongly committed to maintain the finest service to every customer . This is conducted by providing proper advice on structuring Reinsurance coverage and selecting security panel for specific risks and perils concerned.
In order to interact more swiftly with our clients’ needs and requirements , we are now privileging proximity and Nasco re is moving to new geographies !
In this context , Nasco Group enjoying historical presence in KSA ,UAE and Qatar has already extended its offices network to Oman and will be moving to establish new operations in Kuwait and Bahrain .
The other targeted region is the Maghreb which represents a priority of our strategic plans for growth . In sub-Saharan Africa , Nasco Nairobi is focusing on East Africa , and we are planning to have other offices in the continent to consolidate our presence in other African Markets .
In the Indian Sub continent, we shall consolidate our presence in India and Pakistan and neighbouring Countries.
In our industry, growing the business is above all about growing the People. The challenge of shortage in skilled people makes no doubt the talent acquisition a number One priority for Nasco. We are constantly focused on attracting , engaging and retaining expert work force . By adopting a successful talent strategy and onboarding the right people, needed to drive business forward , we maintain the agility required to get the job timely done thus achieving our goals regarding customers’ satisfaction . Nasco is very proud of the winning Team deployed on every front across the organisation.
On the products and services , we are putting increased emphasis on expanding our offering re speciality lines . We are also privileging digital interactive engagement to improve customer journey and experience . Efforts are being made also re Data collection and analysis to enhance Nasco capacity to innovate and personalize our regular communication with partners .
In summary, Nasco Re is adapting to the changing environment and boosting its level of efficiency . We want to continue to Lead in delivering value to clients.
