Underwriters grapple with ‘ripple effects’ of geopolitical risk
The challenges of the geopolitical landscape are writ large for underwriters today and Markus Eugster (pictured), chief executive officer of Korean Re Switzerland, says the big questions around innovative risk mitigation still need to be answered.
“You’re going to feel pressures on the underwriting side as well as the investment side.” Markus Eugster, Korean Re
For Eugster, the key geopolitical risks are a combination of things. Conflicts, such as the Russian invasion of Ukraine, and the “ripple effects” they send around the world are happening as the globe is still recovering, in terms of trade flow, from the COVID-19 pandemic, even though China has now reopened.
“The combination of these various factors has led, especially in the Western Hemisphere, to inflation,” he said. “Central banks have reacted to inflation, so you have geopolitical risks, which have also triggered economic action, which are then reflected on the balance sheet of many companies.”
These risks present a challenge for underwriters because reinsurance is built on the idea of diversification, he said.
“If you have events with ripple effects which go around the globe, that makes the management of a reinsurance company quite challenging because you’re going to feel pressures on the underwriting side as well as the investment side.”
In terms of innovative solutions to such a big challenge, Eugster told Intelligent Insurer that he was “not sure whether we’ve seen the big innovation yet”.
“Many questions are still open and outstanding. We’re talking about geopolitical issues but we have an overarching topic, which also impacts reinsurance: climate change.”
With such a combination of major influences, he suggested, an assessment of how close you want to be to a risk is very important to mitigate the impact on the underwriting side of your business.
“Something which traditionally was expected to have a return period of, for example, one in 100 years might be one in 20 years now. You need to reflect that in your underwriting strategies.”
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