Adequacy the biggest risk facing reinsurers, says AXIS Re EMEA president

Adequacy is the biggest challenge facing the reinsurance industry, according to Andy Hottinger, president of EMEA and LatAm at AXIS Re.

“If losses are benign in some segments it is more of a challenge writing business in segments where they are not,” he explained.

But adequacy is not the only challenge facing reinsurers: Hottinger warned that the industry is probably heading towards an impending correction.

“Interest rates are low and look set to fall further, perhaps into negative territory. Casualty loss trends are picking up, and property risk classes are under pressure. It means a correction is likely,” he said.

He stressed that low interest rates put additional pressure on underwriting, with less investment income available to support long tail businesses.

However, he expressed confidence the industry could ride it out. “Capacity is high in the insurance industry, and the impact will be concentrated in specific business segments that have adverse exposure,” he said.

“In Europe property and casualty and large commercial risk have made significant losses, the correction is already underway and will continue.”

In the longer term, Hottinger said, climate change presents a huge challenge for reinsurers, as well as for broader society. The impact will not be felt evenly across the industry, with some business lines, such as property and agricultural, set to be hit particularly hard, he said.

“If it can be proved that the California wildfires were climate-related then a case can be made that utility companies didn’t take enough care, which means liability. Ultimately climate change will end up in many different places,” he added.

With EU and UK parliaments set to examine the latest Brexit withdrawal treaty, hopes had been raised as Baden-Baden Today went to press that a “no-deal” Brexit could be avoided, but regardless of what happens Hottinger was sanguine about the impact for his business.

“AXIS Re is domiciled in Ireland so naturally it is less of a concern to us,” he said.

“Brexit could certainly have an impact on our Lloyd’s business, but the fact we are based in Ireland gives us a plan B if that business is disrupted.”